Glossary · Reading the business
Moral Hazard
In short
A situation where one party takes on more risk because another party bears the cost of that risk. It can appear when a seller's incentives change post-sale.
What it means in a deal
In an acquisition, moral hazard could arise if an earnout structure isn't aligned with long-term business health, incentivizing short-term gains at the expense of future value. Structure deal terms like earnouts and seller notes carefully to ensure the seller remains invested in the business's success and doesn't cut corners after closing.
Related terms
Common questions about Moral Hazard
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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