Glossary · People and paperwork
Subordinated creditor
In short
A lender or individual whose claim to repayment is ranked below other creditors. For SBA loans, this often applies to sellers who provide a seller note.
What it means in a deal
If the seller provides a seller note as part of your equity injection, the SBA will require them to be a subordinated creditor. This means the SBA lender gets paid first in case of default. The seller's note will have a standby agreement, potentially full or partial, dictating payment terms.
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 Subordinated creditor
- When is an intercreditor agreement required between a 7(a) lender and another secured creditor for an SBA loan?
- What are the SBA's requirements for subordinating its lien position to another creditor on a 7(a) loan?
- If a seller takes a fully subordinated note, can they remain an employee or consultant after acquisition?
- Can the seller receive interest payments on a fully subordinated seller note during the SBA loan term?
- What happens if the seller's standby note is not properly subordinated or documented by the closing date?
- If a seller note is on full standby, can it be subordinated to a different, non-SBA loan simultaneously?
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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