Can gift money be used for the SBA equity injection?
Short answer
Yes. Cash that is not borrowed counts, including a gift, and it is an unlimited source on a business purchase. A gift letter alone is not enough proof. Source: SOP 50 10 8.1, App. 15, Para. C.2.a; Sec. B, Ch. 6, Para. D.3.f.
Yes. The SOP's list of eligible sources starts with cash that is not borrowed, and it names a gift as an example. See SOP 50 10 8.1, Sec. B, Ch. 1, Para. C.2.b, and Ch. 2, Para. C.2.a. On a business purchase, that cash is an unlimited source, so a gift can supply all of the required equity (App. 15, Para. C.2.a).
The gift must really be a gift
The source is cash that is not borrowed. If the giver expects repayment, treat it as a loan. Borrowed money must then meet the rules for personal loans or standby debt.
Documents the lender needs
A gift letter by itself is not enough. Sec. B, Ch. 6, Para. D.3.f, says a promissory note, gift letter or financial statement is not sufficient without corroborating evidence. For a cash injection, the lender needs:
- A copy of the check or wire, with evidence it was processed into the borrower's account or escrow
- The most recent statements, covering at least 30 days, from the account the funds came from
- A borrower account statement showing the deposit, or a settlement statement showing the use of cash
SBA Express and Export Express
These loans are excepted from the SBA-required verification. If the lender verifies equity on similar non-SBA loans, it must do so here too (Para. D.3.f).
Ask your lender early how it wants gift funds documented.
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