How much equity does a start-up need for an SBA 7(a) loan?
Short answer
A start-up must inject at least 10% of total project costs. SBA treats a business as a start-up when it has been in operation for 1 year or less. Source: SOP 50 10 8.1, Sec. B, Ch. 1, Para. C.2.b; Ch. 2, Para. C.2.a.
A start-up must inject at least 10% of total project costs. SOP 50 10 8.1, Sec. B, Ch. 1, Para. C.2.b, and Ch. 2, Para. C.2.a, state the rule for Standard 7(a) and 7(a) Small loans. The CAPLines and International Trade chapters carry the same minimum.
What counts as a start-up
A business is a start-up if it has been in operation for 1 year or less. SBA measures operation as generating revenue from intended operations. Months of preparation without that revenue do not count.
What total project costs means
It covers all costs required to become operational, regardless of the source of funds. Lines of creditA credit limit you can draw on, repay and draw on again. and 504 loans are excluded. So a $400,000 project cost means at least $40,000 of equity.
Separate projects
Loans approved more than 90 days apart are treated as separate projects.
Programs that differ
- SBA Express. The Express section leaves equity to the lender's judgment and has no start-up percentage (Sec. B, Ch. 2, Para. C.2.b).
- 504. A business that has operated two years or less contributes at least 15% (13 CFR § 120.910).
Asset purchases that restart the business
If you buy assets without continuing the seller's operations, the lender may evaluate the deal as a start-up (App. 15, Para. A).
The repayment test
Standard 7(a) projections must show debt service coverageCash available for loan payments, divided by those payments. Above 1 means the cash covers them. Full definition of 1.15:1 or better within 2 years of funding (Sec. B, Ch. 1, Para. C.2.a).
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