SBA equity injection: what counts as your money and what a lender will refuse

On a start-up or a change of ownership, the SBA expects the borrower to have money in the deal. How much is a percentage of the project set by SBA rule and revised in the SOP; the current figure is at sba.gov. Do not take a percentage from an article and build your purchase price around it.

The part worth writing about is the other half of the question, which nobody explains until it is a problem: what counts, and how you prove it.

The principle

The injection has to be money that is genuinely at risk and genuinely yours. Not money the business has to repay out of its own cash flow. Not money that appeared in your account last week from a source you cannot document. The lender must be able to trace it, and at guarantee purchase the SBA will check whether it did.

That is why verification is aggressive. It is not distrust of you specifically. An unverified injection is one of the recurring reasons a lender's guarantee gets reduced when a loan fails.

What usually counts

What usually does not count

• Borrowed funds the business will repay. A loan is a loan, whatever the paperwork calls it.
• A "gift" with a side agreement.
• Cash you cannot source. Large deposits shortly before application are the classic failure — the lender has to trace them, and "savings I kept at home" is not traceable.
• Money already spent on the deal without documentation. Keep receipts and wire confirmations for deposits and fees you paid before the loan existed; properly documented, those costs may count toward the project.
• Funds borrowed against the business's own assets.

Home equity sits in the middle. Borrowing against your house and injecting the proceeds can be acceptable when the payment is serviced from income outside the business and everything is disclosed, but it is lender-by-lender and rule-bound. Ask, do not assume.

How lenders verify

Expect all of the following:

1. Consecutive statements covering a defined lookback, for every account involved.
2. An explanation and documentation for any deposit that is out of pattern.
3. Evidence of the funds moving into escrow or into the business at closing — a wire confirmation, not a screenshot of a balance.
4. Source documentation for gifts, asset sales, rollovers and investor funds.
5. On a change of ownership, a settlement statement showing the injection actually applied to the purchase.

Season the money. Funds that have sat in your account for months, in an account whose statements you can produce, cause no argument. Money moved between five accounts in the two weeks before closing causes several.

Where this collides with the deal

Two failures repeat.

A stack that works, and the order it gets built in

Seeing the numbers assembled once makes the sequencing obvious.

Now look at what each number required. The $65,000 of cash needed months of statements in an account you can produce. The seller note needed standby terms negotiated into the purchase agreement, not bolted on afterwards. The $45,000 of closing costs needed receipts and wire confirmations kept as you paid them, because documented properly they may count toward the project. And the $55,000 of working capital needed to be in the request from the start, because adding it later changes the project size, the injection and the collateral analysis together.

That is the order: confirm the requirement, structure the note, season the cash, document as you go.

How long seasoning actually takes

The practical rule is that money should be sitting still, in an account whose statements you can produce, for the whole of the lender's lookback period. Ask what that period is at the first conversation, because it sets the earliest date you can close.

If the funds have to move — an asset sale, a retirement rollover, a gift from a relative who must liquidate something — start the transfer before you start the application and keep the chain intact: contract, settlement statement, transfer record, deposit. A well-papered transfer three weeks before closing causes less trouble than an unexplained one six months earlier.

The short version

The percentage is a rule you look up. The source of funds is a case you build. Start the documentation before you start the application: pull statements, write down where every non-routine deposit came from, and get any gift or standby note papered properly. It is the cheapest work in the whole process and it is where files stall.