SBA Lender Guideline on Equity Injection

In SBA Loans by Key Commercial Capital

SOP 50 10 5(H) Subpart B

Effective Date: May 1, 2015 164


iii. Assets other than Cash

Lenders must carefully evaluate the value of assets other than cash that are injected by owners or principals. Therefore, an appraisal or other valuation by an independent third party is required if the valuation of the fixed assets is greater than the depreciated value (net book value). A valuation of the fixed assets provided as part of a business valuation will not meet these requirements, except as part of a going concern appraisal as described in paragraph II.C.5.e) below.

iv. Standby debt

Debt that is on full standby (no payments of principal or interest for the term of the SBA-guaranteed loan) may be considered acceptable equity for SBA’s purposes. A debt that is on partial standby (interest payments only being made) may be considered equity when there is adequate historical business cash flow available to make the payments. A copy of the note must be attached to the standby agreement. (See Chapter 5, Paragraph IV of this Subpart for additional discussion of standby agreements.)

b) The following may not be considered as Equity Injection:

i. Value or cost of education; and ii. Funds that are borrowed and do not meet the exception noted in subparagraph a)(2) above. 3. Documentation of Equity Injection. a) Lenders must verify the injection prior to disbursing loan proceeds and must maintain evidence of such verification in their loan files. Lenders are expected to use reasonable and prudent efforts to verify that equity is injected and used as intended, and failure to do so may warrant a repair or partial/full denial. Lenders must submit with each purchase request on a loan for which the loan authorization required an equity injection, documentation to show that they verified the equity injection. Verifying a cash injection requires the following documentation: i. A copy of a check or wire transfer along with evidence that the check or wire was processed showing the funds were moved into the borrower’s account or escrow; ii. A copy of the statements of account for the account from which the funds are being withdrawn for each of the two most recent months prior to disbursement showing that the funds were available; and iii. A subsequent statement of the borrower’s account showing that the funds were deposited or a copy of an escrow settlement statement showing the use of the cash. b) A promissory note, “gift letter” or financial statement is not sufficient evidence of cash injection without corroborating evidence consistent with paragraph a) above.


Looking for a loan program without any equity injection, down payment or cash reserves needed?  Read about the unsecured bank loan program.