Glossary · Doing the deal
Subordinate Lien
In short
This is a legal claim on an asset that ranks lower than another claim in terms of priority for repayment if the borrower defaults. Buyers typically see this when a seller note is used as part of the equity injection, making it subordinate to the SBA loan.
What it means in a deal
The SBA requires any seller financing used for the buyer's equity injection to be on "full standby" or "partial standby," which means it has a subordinate lien position to the SBA's first lien. This arrangement protects the SBA and your primary lender by ensuring they get paid first from collateral if the business fails.
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 Subordinate Lien
- What if the seller wants to retain a subordinate lien on some business assets after the sale?
- Can a seller note be subordinate to the SBA loan but still receive principal payments?
- What happens if a seller note on standby is subordinate to another non-SBA debt?
- How long must a seller note be subordinate to the SBA loan for a business acquisition?
- What are the specific requirements for a lender to obtain a valid first lien position on UCC collateral when prior liens exist?
- When must a lender take a lien on specific equipment for collateral, beyond a blanket lien?
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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