Glossary · Reading the business
Related-Party Transactions
In short
These are dealings between the business and its owner, owner's family, or other entities they control. Buyers must scrutinize these to ensure they reflect true market value and aren't inflating or deflating profits.
What it means in a deal
During due diligence, always look for related-party transactions, such as excessive rent paid to an owner-owned property or salaries to family members not actively working. These often appear as "add-backs" to adjust EBITDA or SDE, but ensure they are legitimate and at arm's length to get an accurate picture of the business's true profitability.
Related terms
Common questions about Related-Party Transactions
- 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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