Glossary · Reading the business
Related party
In short
Individuals or entities connected to the seller or target business through ownership, family ties, or common control. Transactions with related parties often require extra scrutiny.
What it means in a deal
During due diligence, always look for transactions between the seller's business and "related parties," such as family members or other businesses they own. These transactions might not be at "arm's length" and could inflate expenses or reduce revenue, impacting the true profitability of the business. Lenders will also scrutinize related party debt.
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 Related party
- When is an independent business valuation required for an SBA 7(a) acquisition, especially for related party transactions?
- Why does the SBA combine the size of related businesses when checking loan eligibility?
- How does a lender prevent a guaranty denial related to undisclosed affiliations identified post-closing?
- Can a third-party loan, not from the seller, count towards the minimum equity injection?
- What specific language must a non-SBA third-party standby agreement include to ensure eligibility?
- What specific due diligence is required for a 7(a) loan involving a change of ownership between related parties?
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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