Glossary
Equity injection
Your own money, put into the project alongside the loan. On SBA loans what counts as equity is defined narrowly, and failing that definition is one of the commonest reasons an otherwise sound deal does not close.
Equity injection: Your own money, put into the project alongside the loan. On SBA loans what counts as equity is defined narrowly, and failing that definition is one of the commonest reasons an otherwise sound deal does not close.
Why it matters
Lenders want you to have money at risk. The principle is simple; the definition is where deals die, because borrowed money that the business must repay generally does not count as equity no matter how it reaches the account.
Borrowers routinely arrange what they believe is their injection, then discover weeks into underwriting that the source disqualifies it.
What the SBA's rulebook counts
Per SOP 50 10 8.1, the following may be treated as equity injection:
- Cash that is not borrowed — from the business's balance sheet, your own savings, or a genuine gift.
- Cash from a personal loan, but only where repayment can be shown to come from a source other than the business's cash flow. Your salary from the business does not count as that other source.
- Debt on full standby — no principal and no interest for the entire term of the SBA loan. See standby agreement. This is how a seller note often becomes equity.
- Grants with no repayment or clawback provisions during the life of the loan.
- Assets other than cash, with independent appraisal where valued above net book value.
- Verified prepaid expenses, documented with paid invoices or bank statements.
How much
The SBA's rulebook requires a start-up — defined as a business operating for one year or less — to inject at least 10% of total project cost, where project cost means all costs required to become operational. Loans approved more than 90 days apart count as separate projects. Changes of ownership have their own requirements.
Those are minimums. Individual lenders frequently want more, and on an acquisition a lender's own policy often exceeds the floor.
Documenting it
- Expect to show where the money came from, not just that it exists. Two months of statements showing the funds, and an explanation of any large recent deposit.
- Season the funds if you can — money that has sat in the account for months raises fewer questions than money that arrived last week.
- A gift needs a gift letter stating it is not repayable.
- Get the standby agreement signed properly where a note is counting as equity.