Glossary · The loan itself
Subordination of Lien
In short
This is an agreement where one creditor (like a seller) agrees their claim on collateral is secondary to another creditor (like the SBA lender). It ensures the SBA lender gets paid first.
What it means in a deal
If there's existing debt on the business or specific assets, or if you're using a seller note, the SBA lender will require a "subordination of lien" from those other creditors. This guarantees the SBA loan has "first lien position" on critical collateral, as required by SBA rules. Always confirm that all existing liens will be properly subordinated or paid off at closing.
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 of Lien
- What are the lien subordination requirements for a seller note on full standby in a 7(a) acquisition?
- If I use a seller note as part of my equity, what are the specific subordination terms required?
- What documentation is specifically required for a lender to demonstrate proper subordination of a seller note on full standby?
- Is a separate lien required on each piece of equipment if a blanket lien is already in place?
- 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?
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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