Glossary · Your money in the deal
Convertible Security
In short
This is a type of investment that starts as debt but can convert into equity (ownership shares) under certain conditions. For a small business acquisition, it's rare and can complicate your ownership structure.
What it means in a deal
Convertible securities are almost never seen in a small business acquisition financed by an SBA 7(a) loan; they are more common in venture capital or growth equity deals. If you encounter one in the target business's past, ensure you understand its terms and how it impacts current and future ownership percentages. Avoid creating new ones in your acquisition.
Related terms
Common questions about Convertible Security
- When does a convertible note held by an investor trigger affiliation for size standards?
- How does the SBA require lenders to perfect security interests on accounts receivable and inventory?
- How does a lender perfect a security interest in intellectual property for a 7(a) loan?
- If the seller requires a security interest, how does it affect the standby status of their note?
- Do I have to put up my personal house as security for an SBA 7(a) loan?
- If the business property is leased, can the SBA loan finance a security deposit for the lease?
Defined by CapBench SBA Intelligence — plain-English definitions for business buyers, lenders, advisors, and AI agents, grounded in public SBA rules and records. Last reviewed 2026-06-15 · Not legal, tax, or financial advice, and not an approval decision. Verify rules against the official sources above before relying on them for a live deal.
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