Equity Injection: Every Source the SBA Accepts and How to Document It

The equity injection is the part of your purchase that does not come from the SBA loan. Under SOP 50 10 8.1, Appendix 15, a complete change of ownership requires 10% of total project costs. Total project costs means all costs required to complete the change of ownership, regardless of who funds them. That includes the price, closing costs, and any working capital the loan finances, so the base is larger than the headline price.

The rule applies to loans that receive an SBA loan number on or after October 1, 2026. Loans numbered on or before September 30, 2026 stay under SOP 50 10 8, which also required 10% for a complete change of ownership.

Here is how it plays out on a call. You sign an LOI. The lender sizes the loan, subtracts your injection, and tells you how much cash and what paper must be on the table at closing. The lender may not waive the 10% on a complete change of ownership. What you can control is the mix of sources, because the SBA sorts sources into two buckets.

• Unlimited sources: unborrowed cash, a personal loan to a guarantor that is repaid from a source other than business cash flow, and grants with no repayment or clawback during the loan term.
• Limited sources: standby debt, seller debt on full standby, and non-controlling minority investor equity.

Limited sources, individually or together, can supply no more than half of the injection. At least half must come from unlimited sources, and you should confirm with your lender which bucket each dollar falls into before you write an LOI price.

The SBA accepts six kinds of money toward the injection, and each has a condition attached. Anything outside this list is a question for your lender in writing, not an assumption.

Two exclusions matter. Expenses for education, advisory services, and agent fees that you pay do not count as injection under 8.1. A promissory note or a gift letter alone is not sufficient proof of anything. If a family member is giving you money, the lender still needs the funds documented as described below, and a gift is not on the SBA's list of unlimited sources, so ask your lender how it will treat one before you count on it.

The coverage test sits next to the injection and drives how much debt you can carry. For an Initial Acquisition or Owner Buyout, SOP 50 10 8.1 requires 1.25x on historical results, either the last fiscal year or a two-year average, and projections cannot be used to meet it. The 1.15x figure applies only to a Business Expansion, which is an existing business buying another in the same industry group. For a buyer coming in from outside, the number is 1.25x. You can test your own deal in the SBA 7(a) loan calculator.

On a $3,000,000 purchase with $650,000 of SDE, a 10% injection is $300,000, and at most $150,000 of it can come from limited sources. To keep the arithmetic clean, this example treats total project cost as equal to the purchase price. In a real deal, closing costs and financed working capital raise the base, and the 10% rises with it.

SDE is net profit plus one owner's full compensation plus documented add-backs. The SBA's coverage test does not run on SDE. It runs on EBITDA, which is SDE minus a market-rate salary for a replacement manager. So $650,000 is where the lender starts, not the number it divides by debt service.

Structure A: cash plus a standby note

• Buyer cash: $150,000 (unlimited)
• Seller note on full standby: $150,000 (limited, exactly at the half cap)
• SBA loan: $2,700,000
• Total funded: $3,000,000

The $150,000 note carries no payments for the life of the SBA loan, so it stays out of debt service in the coverage test. Interest may accrue and be added to the standby balance, to be amortized after the 7(a) loan is paid in full.

Structure B: a guarantor loan fills part of the cash

• Buyer cash: $100,000 (unlimited)
• Personal home equity loan repaid from outside household income: $50,000 (unlimited, if the lender accepts the repayment source)
• Seller note on full standby: $150,000 (limited)
• SBA loan: $2,700,000

Structure C: a minority investor shares the limited bucket

• Buyer cash: $150,000 (unlimited)
• Seller note on full standby: $100,000 (limited)
• Minority investor under 20%: $50,000 (limited)

The standby note and the investor together total $150,000, the full half cap. If you want a $150,000 seller note and an investor, the numbers fail, because the limited sources add up to more than $150,000 and the cash side drops below half.

One more trigger sits at this price. When the business purchase price, meaning the price less appraised owner-occupied real estate, is $3,000,000 or more on an Initial Acquisition, SOP 50 10 8.1 requires a quality of earnings report. At exactly $3,000,000 with no real estate in the price, you are at the threshold. Read Quality of Earnings for Buyers before you set your diligence budget, because the lender must use the QoE's normalized earnings in its coverage calculation.

You cannot negotiate the 10%, the half cap, or the standby terms, because those are SBA rules, and the lender cannot waive them for a complete change of ownership. You negotiate everything around them, and the weight shifts by item.

• Whether the seller carries a note at all. The seller holds this one. A seller who wants cash at close can refuse, and then your injection must be all unlimited sources or include an investor within the cap.
• The note's interest rate and accrual. You hold more of the position here. The seller is waiting for the full SBA term, and the business acquisition portion of a 7(a) loan can run up to 10 years. Accruing interest added to the standby balance is the usual place to give the seller something without touching your debt service.
• Price against the appraisal. The lender must order an independent valuation from a Qualified Source when the purchase price is above $350,000. Total acquisition debt, meaning the SBA loan plus any seller debt not on full standby, cannot exceed that valuation. If the appraisal comes in under your price, the gap must be funded by equity or by debt on full standby. The lender holds the pen on this one, and your LOI should say what happens to price if the appraisal falls short. The letter of intent guide covers that language.
• A seller note that is not on standby. This does not count toward your injection and does count toward debt service. If the note is interest-only, SBA amortizes it over no more than 10 years for the coverage test. The seller who insists on payments is effectively asking you to carry more debt against the 1.25x.

The seller financing guide walks through note terms in detail. It also covers what a seller may ask for in return for staying on full standby for the life of the 7(a) loan.

The mistakes below each cost a buyer time at the lender, and several can change whether the deal closes at all.

• Moving money late. The lender must see bank statements showing the funds available for at least 30 days. Cash that arrives from a sale or transfer in the final weeks has to be traced to its source, and a deposit with no paper trail stalls underwriting.
• Counting your own advisor and diligence fees. Education, advisory services, and agent fees you pay do not count as injection under 8.1. Budget them separately from the $300,000 in the example above.
• Funding the loan repayment from the business. A personal loan counts as unlimited only if it is repaid from a source other than business cash flow. Planning to repay it from your owner salary at the company you are buying disqualifies it.
• Stacking limited sources. A standby note plus a minority investor plus other standby debt all share one half cap. Buyers who add them one at a time discover the total only when the lender sums them.
• Treating the standby note as something to refinance early. A seller note on full standby stays on standby for the life of the SBA loan. The 36-month seasoning rule applies to a seller note from a change of ownership that is paid as agreed and later refinanced with SBA debt. It does not turn a standby note into a short-term one.
• Sizing the injection off the price instead of project cost. The base includes closing costs and any financed working capital. Ask your lender for a sources and uses table early so the 10% is calculated on the real number.
• Using the older coverage standard. Prior SOP 50 10 8 allowed projections to support coverage. Under 8.1, the 1.25x must be met on historical results.

If you are not sure how a source will be classified, send the lender a one-page summary of each source and its repayment path before you sign the LOI. Ask for the classification in an email so the answer is on record when underwriting starts.

You document it with bank statements, copies of the checks or wires, and the settlement statement. SOP 50 10 8.1 requires the lender to verify the injection this way, and a promissory note or gift letter alone does not satisfy it.

1. Cash: statements showing the funds in your account for at least 30 days before closing, with large deposits explained and sourced.
2. Guarantor loan: the loan agreement, the proceeds trail into your account, and evidence of the outside income that repays it.
3. Seller standby note: the note itself, plus SBA Form 155 documenting full standby for the entire loan term, including how interest accrues.
4. Minority investor: an operating agreement or subscription document showing the investor holds under 20%, has no control, and receives only tax distributions until the 7(a) loan is repaid.
5. Grant: the award terms showing no repayment or clawback during the loan term.
6. Closing: the settlement statement showing your wire and the seller note as a credit.

The lender also looks at your guarantee. Holders of at least a 20% ownership interest generally must guarantee the loan under 13 CFR 120.160(a), and the personal guarantee guide covers that requirement in detail.

Start with a sources and uses table, then work backward to the cash you need to season. Take these steps in order.

1. Write down total project cost: price, closing costs, and any working capital you want financed. Take 10% of it. That is your injection.
2. Divide it into the half that must come from unlimited sources and the half that can come from limited sources. Decide whether the limited half is a standby seller note, a minority investor, or a split.
3. Move cash into the account you will close from at least 30 days ahead, and keep a log of where each deposit came from.
4. If the purchase price will be $3,000,000 or more, ask the lender now about the quality of earnings requirement and who orders it. The September 25 technical update allows a lender to review a buyer-ordered QoE through a qualified vendor if it meets SBA minimums.
5. Put the seller note terms in the LOI: full standby for the life of the loan, interest accrual, and the SBA Form 155 requirement.

If you have the cash and a target but no lender, Acquisition Launch sources off-market deals for buyers and introduces lenders. Read the SBA 7(a) acquisition loan guide for the rest of the loan terms, including the 10-year cap on the business acquisition portion.