Glossary · Doing the deal
Subordination agreement
In short
This is a legal document where one creditor agrees to take a lower priority position than another in the event of default. For an SBA loan, the seller note almost always needs to be subordinated.
What it means in a deal
If the seller is providing financing (a seller note), the SBA lender will require a full standby agreement. This means the seller cannot receive principal or interest payments until the SBA loan is fully repaid, or a partial standby, which has specific conditions. This ensures the SBA loan has repayment priority.
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 agreement
- 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?
- What specific language is required in a seller note's subordination agreement to ensure it counts as full standby equity?
- When is a lender required to obtain a subordination agreement for existing business debt that is not being refinanced by a 7(a) loan?
- 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?
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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