2026-02-18
How SBA 7(a) Equity Injection Really Works
Most buyers believe they must bring 10 percent of the purchase price in cash; that is often wrong. SBA rules allow multiple forms of equity and understanding how to structure them properly can dramatically reduce how much cash you need at closing. This is one of the most misunderstood parts of SBA acquisitions.
The Purpose of Equity Injection
Lenders want to see that the buyer has real risk in the deal. Equity proves commitment and reduces the lender’s exposure. But equity does not have to be only cash.
What Counts as Equity Injection
- Cash from the buyer - The most straightforward form.
- Seller note on full standby - If the seller carries a note and agrees to no payments for the life of the SBA loan, it can count toward equity.
- Rollover equity from the seller - If the seller retains ownership in the business, this can reduce required buyer cash.
- Investor equity - Outside investors contributing capital for ownership.
What Does Not Count
- Borrowed money from friends or family
- Seller notes with monthly payments
- Personal loans disguised as equity
- Credit card advances
Lenders verify the source of funds carefully.
How Proper Structure Reduces Cash Required
A common example:
- Purchase price: $2,000,000
- Required equity: $200,000
- Instead of the buyer bringing $200,000 cash:
- Buyer brings $100,000
- Seller carries $100,000 on standby
The SBA requirement is met with half the cash; many buyers do not realize this is allowed.
Why Equity Structure Affects Approval Odds
Lenders see standby seller notes and rollover equity as signs that:
- The seller believes in the business
- Risk is shared
- Cash flow pressure is reduced
That makes approval easier.
Where Deals Go Wrong
- Seller notes written incorrectly
- Standby terms not compliant with SBA rules
- Equity sources not documented
- Buyers committing more cash than needed before understanding options
Learn how to prepare your financials and avoid common applications mistakes.
Before you make an offer, talk with our expert lending team. The right equity structure can preserve your cash and improve your approval odds at the same time.
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