{"ok":true,"canonical_url":"https://dealroom.so/glossary/arm-s-length-employment","api_url":"https://dealroom.so/api/public/glossary/arm-s-length-employment","data_freshness":{"sba_records_through":"2026-05-31","fdic_records_through":"2026-03-31","dealroom_last_updated":"2026-06-15","timezone":"America/Chicago"},"source_summary":["Public SBA 7(a) loan records","FDIC institution data","DealRoom lender and franchise enrichment"],"term":{"slug":"arm-s-length-employment","term":"Arm's-length Employment","aka":"Arm's length","group":"People and paperwork","definition":"Employment where the terms and conditions are fair and independent, as if the parties were unrelated, preventing conflicts of interest. The SBA requires this for certain relationships within a business.","what_it_means":"The SBA requires that any employment or compensation arrangements with immediate family members or affiliates of key principals be on \"arm's-length\" terms. This means their salary and benefits must be reasonable and comparable to what an unrelated person would receive for the same role, preventing inflated expenses that could impact the business's ability to repay the loan.","url":"https://dealroom.so/glossary/arm-s-length-employment","official_sources":[{"slug":"sop-50-10","title":"SOP 50 10 — Lender and Development Company Loan Programs","official_url":"https://www.sba.gov/document/sop-50-10-lender-development-company-loan-programs","official_label":"View on SBA.gov","authority_tier":2,"publisher":"U.S. Small Business Administration","source_guide_url":"https://dealroom.so/sba-7a/sources/sop-50-10"},{"slug":"13-cfr-part-120","title":"13 CFR Part 120 — Business Loans","official_url":"https://www.ecfr.gov/current/title-13/chapter-I/part-120","official_label":"View on eCFR","authority_tier":1,"publisher":"Office of the Federal Register","source_guide_url":"https://dealroom.so/sba-7a/sources/13-cfr-part-120"}],"related":[{"slug":"arm-s-length","term":"Arm's length","url":"https://dealroom.so/glossary/arm-s-length"},{"slug":"conflict-of-interest","term":"Conflict of interest","url":"https://dealroom.so/glossary/conflict-of-interest"},{"slug":"key-principal","term":"Key principal","url":"https://dealroom.so/glossary/key-principal"},{"slug":"affiliation","term":"Affiliation","url":"https://dealroom.so/glossary/affiliation"}],"related_questions":[{"question":"What documents are needed to prove a partner buyout is an arm's length transaction for SBA purposes?","url":"https://dealroom.so/sba-7a/questions/what-documents-are-needed-to-prove-a-partner-buyout-is-an-arm-s-length-transaction-for-sba"},{"question":"What constitutes an acceptable 'arm's length transaction' for a change of ownership between related parties for a 7(a) loan?","url":"https://dealroom.so/for-lenders/questions/what-constitutes-an-acceptable-arm-s-length-transaction-for-a-change-of-ownership-between-"},{"question":"What are the specific requirements for a religious organization's business arm to be 7(a) eligible?","url":"https://dealroom.so/for-lenders/questions/what-are-the-specific-requirements-for-a-religious-organization-s-business-arm-to-be-7-a-e"},{"question":"What is the average repayment term length for an SBA 7(a) loan?","url":"https://dealroom.so/sba-loans/basics/what-is-the-average-repayment-term-length-for-an-sba-7-a-loan"},{"question":"If a seller note is on standby, is the seller prohibited from any post-sale employment with the business?","url":"https://dealroom.so/sba-7a/questions/if-a-seller-note-is-on-standby-is-the-seller-prohibited-from-any-post-sale-employment-with"},{"question":"How does a lender confirm an owner's U.S. citizenship if they were born in a U.S. territory or abroad to U.S. parents?","url":"https://dealroom.so/for-lenders/questions/how-does-a-lender-confirm-an-owner-s-u-s-citizenship-if-they-were-born-in-a-u-s-territory-"}]},"caveats":["Definitions represent DealRoom's plain-English interpretation for buyers; verify regulatory terms against the official SBA and eCFR sources listed.","Not legal, tax, or financial advice, and not an SBA eligibility determination."],"citation":{"label":"DealRoom.so Glossary — Arm's-length Employment","url":"https://dealroom.so/glossary/arm-s-length-employment","source_type":"DealRoom Data"}}