Glossary · The loan itself
Subordinated Loan
In short
A loan that ranks below other debts in terms of repayment priority. If the business defaults, other creditors get paid back before the subordinated lender.
What it means in a deal
In an SBA 7(a) deal, a seller note is often structured as a subordinated loan to make the transaction more viable for the buyer and lender. The SBA requires a "full standby" or "partial standby" agreement, meaning the seller cannot receive principal payments on their loan until the SBA loan is repaid, or for a specified period. This strengthens the buyer's ability to repay the senior SBA debt.
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 Loan
- Can the seller receive interest payments on a fully subordinated seller note during the SBA loan term?
- Can a subordinated loan from a private third-party investor count as equity injection for an SBA 7(a) loan?
- If a seller note is on full standby, can it be subordinated to a different, non-SBA loan simultaneously?
- Can a personal loan from a non-owner family member count as equity if fully subordinated to the 7(a) loan?
- If a seller takes a fully subordinated note, can they remain an employee or consultant after acquisition?
- What happens if the seller's standby note is not properly subordinated or documented by the closing date?
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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