For SBA lenders
Short answer
The lender must obtain a lien subordination agreement from all prior lienholders or ensure that all prior liens are paid off and released before or at closing to secure a first lien position on UCC collateral.
The SBA requires lenders to take the highest lien position available on collateral. If prior liens exist on UCC collateral (e.g., equipment, accounts receivable, inventory), the lender must either obtain a legally enforceable subordination agreement from the existing lienholders or ensure these liens are satisfied and released, so the SBA lender holds a first priority security interest.
A $600,000 7(a) loan for working capital is secured by accounts receivable and inventory. A prior lender has a blanket lien on these assets. The SBA lender must obtain a subordination agreement from the prior lender, specifying that the SBA loan's lien takes priority on the designated collateral. Alternatively, the prior loan balance must be paid off and its UCC filing terminated at closing.
Insider move
Lenders must verify the lien priority through a current UCC search. Failure to obtain a first lien position, whether through payoff or subordination, on available collateral is a significant underwriting and closing error that can lead to a guaranty repair or denial.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 - Lender and Development Company Loan Programs
Last checked 2026-06-14. Official sources control — verify before relying on any rule for a live deal.
Last reviewed 2026-06-14 · SBA sources checked through 2026-06-14. 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.
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