Glossary · Doing the deal
Subordinated Seller Note
In short
A loan from the seller to the buyer, paid back after the SBA loan. The SBA loan gets paid first if the business struggles, making this a "junior" debt.
What it means in a deal
Many 7(a) deals include a seller note to bridge the gap between your cash injection, the SBA loan, and the purchase price. For it to count as "capital at risk" (equity) by the SBA, it must be fully subordinated to the SBA loan, meaning the seller cannot receive payments until the SBA loan is repaid, or only under strict conditions defined by a standby agreement.
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 Seller Note
- Can the seller receive interest payments on a fully subordinated seller note during the SBA loan term?
- 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?
- If a seller note is on full standby, can it be subordinated to a different, non-SBA loan simultaneously?
- How does a lender evaluate the reasonableness of a business purchase price when the seller note is fully subordinated?
- What are the conditions under which a seller note on full standby can be subordinated to other non-SBA debt?
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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