For SBA lenders
Short answer
Lenders must conduct thorough due diligence on all of the seller's existing debt and liabilities, including obtaining payoff letters for all debt being refinanced or assumed, and verifying that all liens on assets are released or properly subordinated. This ensures a clear transfer of assets.
For a 7(a) business acquisition, the lender is responsible for verifying all existing debts and liabilities of the seller's business. This includes reviewing financial statements, tax returns, and obtaining UCC searches to identify all creditors and liens. For debts being paid off, certified payoff letters from creditors are required. For debts not being paid off (e.g., seller notes or existing real estate debt that will remain), proper subordination or assumption agreements must be executed to ensure the SBA's lien priority.
During underwriting for a $1.2M business acquisition, a lender identifies an existing $100,000 line of credit and $50,000 in equipment leases on the seller's balance sheet. The lender obtains payoff letters for the line of credit and verifies the equipment leases will be either paid off or formally assumed and properly subordinated, with UCC filings released, prior to closing.
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.
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