Equity Injection: Owner Investment in Business Financing
Learn what equity injection means, when it is required, and acceptable sources for meeting equity injection requirements.
What Is an Equity Injection?
An equity injection is money that business owners contribute to a project or transaction, representing their "skin in the game." Lenders require equity injections to ensure borrowers have financial commitment to the success of the venture and to provide a cushion against losses.
For SBA loans and many commercial loans, equity injection requirements typically range from 10% to 25% of the project cost.
Common Equity Injection Requirements
Different loan programs have varying requirements:
| Loan Type | Typical Requirement | Notes |
|---|---|---|
| SBA 7(a) | 10-20% | Higher for startups, changes of ownership |
| SBA 504 | 10% | May be higher for special use properties |
| Bank Commercial | 15-25% | Varies by property type |
| Equipment | 10-20% | Down payment on equipment |
| Acquisition | 15-25% | Owner investment in purchase |
Acceptable Sources of Equity
Not all money qualifies as equity injection. Lenders want unencumbered funds.
- Cash savings
- Investment account liquidation
- Gift funds with proper documentation
- Business retained earnings
- Sale of personal assets
- Retirement account rollover (ROBS programs)
- Seller standby notes (limited circumstances)
What Does NOT Count as Equity
These sources typically do not qualify:
- Borrowed funds (credit cards, personal loans)
- Cash advance from the lender
- Funds from parties related to the transaction
- Sweat equity (in most cases)
- Unsecured promises of future investment
Attempting to use borrowed funds as equity injection is considered fraud in SBA lending. Lenders verify the source of your equity contribution carefully.
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Read more →Important Disclosure
Not Financial Advice: The information provided in this article is for general informational purposes only and does not constitute financial, legal, or professional advice. You should consult with qualified professionals before making any financial decisions.
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Information May Change: Financial markets, lending regulations, and economic conditions are subject to rapid change. While we strive to keep our content accurate and up-to-date, information in this article may become outdated. Always verify current rates, terms, program availability, and regulatory requirements with lenders and official sources before making financial decisions.