How much equity injection does an SBA 7(a) loan require?
Short answer
It depends on the use. Start-ups must inject at least 10% of total project costs. An Initial Acquisition requires 10%, which cannot be reduced or eliminated. Other existing-business loans have no set SBA percentage. Source: SOP 50 10 8.1, Sec. B, Ch. 1, Para. C.2.b; App. 15, Para. C.2.a.
SBA requires at least 10% of total project costs for start-ups and the same percentage for business purchases. Most other 7(a) loans have no fixed SBA percentage.
- Start-ups on Standard 7(a) and 7(a) Small loans. The requirement is 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 (Sec. B, Ch. 1, Para. C.2.b; Ch. 2, Para. C.2.a).
- Initial Acquisitions. The minimum is 10%, which cannot be reduced or eliminated (App. 15, Para. C.2.a).
- Business Expansions and Owner Buyouts. The same percentage applies, but a lender may reduce or eliminate it if conditions are met (App. 15, Para. C.2.a).
- employee stock ownership plan (ESOP) purchases. There is no SBA equity requirement for a loan to an ESOP buying a controlling interest (at least 51%).
- Other existing-business loans. The lender, or SBA on non-delegated loans, must find sufficient invested equity. The test looks at the type of business, management experience and market competition (Sec. B, Ch. 1, Para. C.2.b).
- SBA Express. Whether to require equity is left to the lender's business judgment (Sec. B, Ch. 2, Para. C.2.b).
- 7(a) Manufacturers' Access to Revolving Credit (MARC). There is no minimum based on use of proceeds (Sec. B, Ch. 3, Para. C).
SBA calls the minimum an equity injectionThe money or assets you put into the deal yourself. or applicant contribution. A 504 loan has its own borrower contribution rules (13 CFR § 120.910).
Lenders may ask for more than the SBA minimum, and requirements vary by lender. Ask for the figure and the project cost base it applies to.
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