Glossary · Your money in the deal
Subordinated Debt
In short
This is debt that ranks below other debts in terms of repayment priority. If the business defaults, senior creditors (like your SBA lender) get paid first.
What it means in a deal
Seller notes used as part of your equity injection for an SBA loan must be subordinated to the SBA lender. This protects the bank, but it means the seller takes a higher risk. You'll need a standby agreement to formalize this arrangement.
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 Debt
- What are the conditions under which a seller note on full standby can be subordinated to other non-SBA debt?
- Can I use an SBA 7(a) loan for debt consolidation of existing business debts?
- 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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