The One Lease Clause That Can Stall (or Save) Your SBA 7(a) Loan
When a franchisee signs a lease and secures preliminary loan approval, it feels like the finish line is close. But if the lease is missing one small paragraph, an otherwise clean SBA 7(a) or USDA closing can stall for weeks or collapse entirely.
At SBA Funding Depot, we recently helped a new franchisee navigate exactly this problem:
“A perfectly viable deal that went sideways due to a deficient lease lacking a cooperation clause for a Subordination, Nondisturbance, and Attornment Agreement (SNDA).”
This article explains what went wrong, why it matters, and how to prevent it with simple, precise lease language.
A Real Case: A Strong Deal Stalled by a Missing Sentence
Our client, a first-time franchisee, had SBA 7(a) approval to finance the build-out and working capital for a new location.
The tenant had already signed a lease for space in a building encumbered by the landlord’s mortgage. As part of standard closing conditions, the SBA lender requested an SNDA from the landlord’s mortgage lender.
Why? Because an SNDA is the document that says, in effect: if the landlord’s bank ever forecloses, the tenant whose current on rent can stay, and the lender’s collateral, equipment, fixtures, and leasehold improvements won’t be swallowed by the landlord’s mortgage. It’s about predictability and protection.
Here was the snag: the tenant’s lease did not obligate the landlord to help obtain the SNDA. Without that obligation, the landlord’s lender had little incentive to engage quickly (or at all).
Emails were exchanged, fees were discussed, time slipped by. The result was months of unnecessary delay and cash-flow stress for a tenant eager to open.
Why Does This Matters in SBA/USDA Lending?
For leasehold transactions, lender security is non-negotiable. Your lender needs comfort on three points:
Nondisturbance: If the landlord’s lender forecloses, a rent-current tenant can remain in the space.
Collateral protection: The lender’s collateral (equipment, fixtures, and leasehold improvements) isn’t wiped out by the building lender’s rights.
Recognition by the building lender: The landlord’s mortgagee acknowledges (in the SNDA) those protections.
If the lease is silent, you’re at the mercy of the landlord’s lender, who may delay, charge fees, add onerous conditions, or simply refuse.
Meanwhile, your clock keeps ticking: contractors wait, staff hiring is paused, marketing windows narrow, and your opening date drifts.
SNDA in Plain English
Subordination: Your lease acknowledges the building lender’s mortgage comes first in priority.
Nondisturbance: In a foreclosure, if you’re paying rent and honoring the lease, you won’t be kicked out.
Attornment: If the lender or a buyer takes ownership after foreclosure, you agree they’re your new landlord on the same terms.
The SNDA aligns the interests of tenant, landlord, and lender so that a foreclosure at the building level doesn’t destroy a healthy business at the unit level.
The Fix: Put the Obligation in the Lease (Before You Sign)
The good news: this problem is almost entirely avoidable. Insert a cooperation clause like the following before executing the lease:
Model Cooperation Clause
“Landlords shall, upon Tenant’s or Tenant’s lender’s request, cooperate in obtaining a Subordination, Nondisturbance, and Attornment Agreement (SNDA) from any current or future mortgagee, in a form reasonably acceptable to Tenant’s lender.”
That one sentence creates a binding contractual duty. It tells everyone—landlord, landlord’s lender, and your lender—that cooperation is part of the deal, not a favor.
Make It Even Stronger (Optional Enhancements)
Timeline: “Landlord will submit required information and follow up within five (5) business days of request.”
Fees: “Any third-party processing fees shall be [paid by Tenant / shared / capped at $___].”
Deliverable: “SNDA in a form reasonably acceptable to Tenant’s lender.”
Remedies: “If the SNDA is not delivered within 30 days, Tenant may delay rent commencement, abate rent, or terminate the lease without penalty.”
These specifics align incentives, control costs, and protect your opening timeline.
Pre-Signing Checklist for Franchisees and Small-Business Tenants
Ask early: “Is there a mortgage or deed of trust on the building?” Get the lender’s name.
Insert the clause: Add the SNDA cooperation language and enhancements.
Clarify costs: Decide who pays third-party or document fees and cap them if possible.
Define timing: Put response and delivery deadlines in writing.
Tie to rent start: Link rent commencement to fulfillment of lender deliverables (including the SNDA).
Use your lender’s template: Many lenders have preferred SNDA forms—ask for it up front.
Loop in counsel: A 15-minute lease edit now can save months later.
Common Pitfalls We See
“We’ll figure it out later.” Later is when leverage is gone. Fix it at term sheet or LOI stage.
Vague cooperation language. “Reasonable efforts” without deadlines invites drift.
Hidden fees. Building lenders sometimes charge review/processing fees—clarify who pays and place a cap.
Rent starts too soon. If rent begins before loan closing—or before the SNDA is secured—you may be paying for space you can’t legally open.
No back-up remedy. Without abatement or termination rights, tenants can be trapped in limbo.
Why Landlords Should Care?
A financed tenant opens sooner, builds out better, and pays rent reliably. By agreeing to a pragmatic SNDA cooperation clause, landlords help protect property income and reduce vacancy risk.
Many institutional owners already treat SNDAs as standard; adopting the same mindset can increase asset value and streamline future leasing.
Why Lenders Care (and Move Faster When You Do This)
When a lease includes clear cooperation language, the lender can underwrite with confidence, order third-party reports earlier, and avoid last-minute conditions.
That means fewer surprises in closing memos, faster credit committee approvals, and smoother disbursements for build-out and equipment.
FAQs
Do all SBA 7(a) loans require an SNDA?
Not always, but it’s common when a tenant’s space is inside a mortgaged building and the lender is relying on leasehold rights and improvements as part of the collateral package.
Can I add the clause after the lease is signed?
Yes—via a lease amendment—but your leverage is strongest before signature. If you’re already signed, negotiate an amendment tied to rent commencement or tenant improvements.
My landlord’s lender wants fees to issue the SNDA. Is that normal?
It happens. Avoid sticker shock by addressing who pays and placing a fee cap in the lease. Often tenants cover nominal processing costs to keep the timeline intact.
What if the landlord’s lender refuses?
If your lease doesn’t require cooperation, you have limited leverage. With the clause (and a timeline/remedy), you can pause rent, delay commencement, or terminate if the SNDA doesn’t materialize.
Is “reasonably acceptable to Tenant’s lender” too open-ended?
It’s a fair standard that gives your lender room to ensure its collateral is protected while preventing either side from insisting on extreme terms.
How SBA Funding Depot Helps?
We review leases with an eye to lender requirements, not just business terms.
In the case above, we flagged the missing clause, aligned the parties on a cooperation timeline, coordinated document flow between counsel, and salvaged the closing.
Our goal is to anticipate lender conditions; SNDAs, estoppels, collateral descriptions, insurance certificates, so your project stays on schedule.
The Bottom Line
A single sentence in your lease can determine whether your SBA 7(a) or USDA loan closes on time. If your location is in a building with a mortgage—and many are—your lender may require an SNDA. Without explicit landlord cooperation written into the lease, you risk avoidable delays, extra costs, and a slipping opening date.
Do this now:
Add the SNDA cooperation clause (with timelines, fee caps, and remedies).
Tie rent commencement to delivery of lender deliverables.
Use your lender’s preferred SNDA form early.
Get counsel to review before you sign.
At SBA Funding Depot, we specialize in spotting these gaps and structuring transactions that satisfy lenders, franchisors, and landlords alike—helping franchisees open on time and on budget.
Disclaimer: SBA Funding Depot®, LLC (SFD) does not offer legal advice. In addition, SFD is not a lender. It is a consulting service that provides the borrower with access to a lending bank that meets the criteria for the desired loan.