Glossary · Doing the deal
Lien subordination
In short
Lien subordination is an agreement where a lienholder agrees to place their claim on an asset behind another lienholder's claim. This changes the payment priority if the asset is sold.
What it means in a deal
In an SBA deal, if the seller is providing a seller note, the SBA lender will require the seller's lien on the business assets to be subordinated to the SBA loan's lien. This means the SBA lender gets paid first from those assets if the business defaults, which is critical for securing the 7(a) financing.
Official sources
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 Lien subordination
- What are the lien subordination requirements for a seller note on full standby in a 7(a) acquisition?
- When is a lender required to obtain a subordination agreement for existing business debt?
- What specific language is required in a seller note subordination agreement for SBA 7(a) loan approval?
- If I use a seller note as part of my equity, what are the specific subordination terms required?
- What documentation is specifically required for a lender to demonstrate proper subordination of a seller note on full standby?
- What specific language is required in a seller note's subordination agreement to ensure it counts as full standby equity?
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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