For SBA lenders
Short answer
The SBA generally requires a first lien position on all business assets. Subordination to another creditor's lien is only permitted under specific conditions, typically for purchase money security interests in specific equipment or real estate, and often requires prior SBA approval.
SBA policy dictates that the lender must obtain an enforceable first lien position on all business assets for loans over a certain threshold, or when sufficient collateral exists. However, the SBA may permit subordination to purchase money security interests or other specific creditors if it does not materially affect the collectability of the SBA loan and is commercially reasonable. Prior SBA approval may be required for certain subordinations, depending on the loan size and type of collateral.
A borrower needs a $750,000 7(a) loan. The lender takes a first lien on all business assets. If the borrower later needs to finance a new piece of equipment through a third-party vendor, the SBA might allow the vendor to take a first lien on that specific new equipment, subordinating the SBA's lien on that asset, provided it's a purchase money lien.
Insider move
Lenders must ensure that any permitted subordination of the SBA's lien position is limited and does not jeopardize the SBA's ability to recover in case of default. Thorough documentation of the commercial necessity and terms of the subordinate lien is critical.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 - Lender and Development Company Loan Programs
Last checked 2026-06-13. Official sources control — verify before relying on any rule for a live deal.
Last reviewed 2026-06-13 · SBA sources checked through 2026-06-13. DealRoom analysis of public SBA 7(a) lending records (FY2020–present). Grounded in the current SBA rulebook; verify against the official sources above before relying on it for a live deal. Not legal, tax, or financial advice, and not an approval decision.
More on collateral & lien requirements
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