Glossary · Doing the deal
Subordination
In short
An agreement by which one debt or lien is ranked below another in terms of priority for repayment. The subordinated debt gets paid only after the senior debt is fully satisfied.
What it means in a deal
If the seller provides a seller note or you have other debt in the deal, the SBA will require it to be subordinated to their 7(a) loan. This means the SBA lender gets paid first if the business fails. Understand the terms of any subordination agreement, especially if it involves a full or partial standby.
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 Subordination
- When is a lender required to obtain a subordination agreement for existing business debt?
- What specific language is required in a seller note subordination agreement for SBA 7(a) loan approval?
- If I use a seller note as part of my equity, what are the specific subordination terms required?
- What are the lien subordination requirements for a seller note on full standby in a 7(a) acquisition?
- What documentation is specifically required for a lender to demonstrate proper subordination of a seller note on full standby?
- What specific language is required in a seller note's subordination agreement to ensure it counts as full standby equity?
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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