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Glossary

What is Equity Injection?

Also called: cash injection, down payment, owner equity

In one sentence: The portion of a project paid with the buyer’s own money, in addition to the loan, which lenders require and expect to be documented.

Last updated · Precise SBA editorial

In plain English

An equity injection is your own money in the deal. The loan covers most of the project; you cover a share. Lenders want the buyer to have real money at risk, and want to see where it came from.

What counts

  • Cash from your own accounts, documented.
  • In some structures, part of a seller note on full standby. See standby seller note.
  • Not everything counts: expect limits on how much can come from sources other than your own cash, and extra scrutiny of borrowed or gifted funds.

How much

Measured against the total project, not just the price: price, closing costs, fees and any working capital. The SBA minimum for a typical change of ownership is 10%, and no more than half of that can come from standby notes and certain other sources that aren’t your own cash. Verify the current figures with a lender.

Hypothetical example

Project: $1,150,000 (price $1,000,000, closing $50,000, working capital $100,000). At an assumed 10% requirement, the injection is $115,000. If the buyer brings $57,500 in cash and the seller carries a $57,500 standby note, and the rules treat that as counting, the loan is the remaining $1,035,000.

Common mix-ups

  • It is not the same as “down payment on the price.” It is measured on the whole project.
  • A seller note is not automatically equity. Whether it counts depends on how it is structured.
  • More is sturdier. Putting in only the minimum leaves little cushion if something goes wrong.

What to do with it

Know your number before the letter of intent. Work through it in sources and uses and the calculator.

Common questions

How much equity injection is required?

For a typical change of ownership, the SBA minimum is 10% of the total project cost. Rules and lender policy change, so confirm the current requirement with a lender.

Can the seller’s note count as my equity?

Sometimes. A seller note on full standby can count toward part of it, but no more than half of the required injection can come from a standby note and similar sources other than your own cash. Confirm with your lender.

Where must the cash come from?

Lenders want a clear, documented source. Borrowed or gifted funds get extra scrutiny and may be limited or conditioned. Ask before you arrange them, not after.

Related terms

Standby Seller NoteSeller financing in which the seller agrees not to be paid for a set period and ranks behind the bank loan, so it does not draw on the buyer’s cash flow.Sources and UsesA table of what a project costs in total (uses) and where each dollar comes from (sources), which must match.Change of OwnershipThe SBA term for a business purchase, including a partner buyout, which carries its own requirements on buyer cash, seller notes and cash-flow coverage.

Go deeper

Equity Injection and Seller Notes in an SBA Business PurchaseTwo ideas drive the cash side of most acquisitions: how much of your own money goes in, and how the seller's financing is treated. The details changed with SOP 50 10 8.1, so confirm them before you negotiate.Buying a Business with an SBA Loan: How the Financing Comes TogetherAn acquisition loan is underwritten on the business you're buying, and on you. Here's how the pieces fit, in the order they usually come up.

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General information, not legal, tax or financial advice. Precise SBA is not affiliated with the U.S. Small Business Administration. Rules and lender policies change. Examples use hypothetical numbers. We never charge you. If a loan closes, the lender may pay us a referral fee, disclosed on SBA Form 159 (how we get paid). Back to the glossary.