Glossary · Your money in the deal
Fully Subordinated Debt
In short
This is a loan or debt that explicitly ranks below all other debt, especially the SBA loan, in terms of repayment priority. It's often used for seller notes to meet SBA equity injection requirements.
What it means in a deal
For an SBA 7(a) loan, any seller note or other debt that counts towards the buyer's equity injection must be fully subordinated to the SBA loan. This means the seller cannot be paid until the SBA loan is paid in full, and they typically cannot take collateral. A "full standby agreement" formalizes this, ensuring the SBA loan has first claim on cash flow and assets.
Official sources
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 — Lender and Development Company Loan Programs
U.S. Small Business Administration · SBA Standard Operating Procedure
Last checked 2026-06-15. Official sources control — verify before relying on any rule for a live deal.
Related terms
Common questions about Fully Subordinated Debt
- If a seller takes a fully subordinated note, can they remain an employee or consultant after acquisition?
- Can the seller receive interest payments on a fully subordinated seller note during the SBA loan term?
- How does a lender evaluate the reasonableness of a business purchase price when the seller note is fully subordinated?
- Can a seller who takes a fully subordinated note also remain an employee or consultant of the business after the acquisition?
- Can a personal loan from a non-owner family member count as equity if fully subordinated to the 7(a) loan?
- For a $900,000 business acquisition, what percentage of the total required equity injection can come from a fully subordinated seller note?
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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