Equity Requirements for SBA Financing

If you are short on capital to meet the minimum amount of equity needed to purchase a small business, it is possible to use some of the equity from the seller. In these cases, the seller will hold a note for a specified amount.

SBA states that a minimum of 10% must be injected into an acquisition of a small business which can consist of it as half from the buyer’s funds and the other half to be held by the seller. In this case, the seller note would have to be on full standby for the term of the loan and this is required by SBA. If the seller is willing to provide a much larger portion, the lender does not have to consider anything over 5% of the total project cost to be part of the required equity. However, many lenders will require the entire seller note to be on full standby for the term of the SBA loan.

The team at Blue Water Capital Advisors has extensive experience in SBA lending. Our CEO, James Rath, has prior banking experience with significant knowledge of the SBA’s policies. Having been heavily on the credit side of banking, we are able to assist clients with SBA eligibility matters.

For more information, feel free to reach out to us. Don’t forget to subscribe to our newsletter.