For SBA lenders
Short answer
A lender is required to obtain a subordination agreement for existing business debt not being refinanced if that debt is secured by collateral also taken by the 7(a) loan, or if the debt repayment impacts the borrower's ability to repay the 7(a) loan, especially from a related party.
SBA policy mandates that the 7(a) loan typically holds a first lien position on all available business assets. If there is existing business debt that will not be paid off by the 7(a) loan but is secured by the same collateral, the lender must obtain a subordination agreement from the existing creditor. This ensures the 7(a) loan's priority position. Additionally, if the existing debt is from a related party (e.g., seller or insider), and its repayment schedule would impact the business's cash flow, a full or partial standby agreement and subordination may be required to protect the 7(a) loan's repayment.
A lender underwrites a 7(a) loan to acquire a business that has an existing $50,000 equipment loan from a local bank. This equipment will serve as collateral for the 7(a) loan. The lender must obtain a subordination agreement from the local bank, ensuring the 7(a) loan's lien takes priority over the existing equipment loan.
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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