The cash or other equity an owner puts into an SBA-financed project. A 7(a) start-up or business purchase needs at least 10 percent of total project cost; a 504 project needs 10, 15 or 20 percent.
For a 7(a) loan, SBA sets a 10 percent minimum for a start-up (a business in operation a year or less) and for a change of ownership. The base is total project cost: every cost needed to become operational, whatever the source, except lines of credit and 504 loans. For an established business buying equipment or property, the lender or SBA judges whether equity is enough.
Unborrowed cash counts, as does cash from a personal loan repaid from a source other than the business, grants with no repayment or clawback, and verified prepaid expenses. In a change of ownership, standby debt, seller debt on full standby (no payments of principal or interest for the loan term) and a minority investment under 20 percent may together supply no more than half of the required amount. Fees paid to an agent, and education or advisory costs, do not count.
The lender verifies cash with a check or wire and proof it cleared, plus 30 days of statements. A gift letter or note alone does not do it. Example: on a $1,000,000 project the minimum is $100,000. $60,000 in cash and a $40,000 standby seller note meet it, because $40,000 is within half of $100,000.
How it shows up in the data here
Not in any public file. The SBA loan file has no field for the owner's cash, so no lender page can show it. On a 504 row, GrossApproval and ThirdPartyDollars show the SBA and bank parts of a project, but the borrower's share is not recorded. Ask the lender what it counts as equity and how it verifies it.
Go further
- SBA 504 structure calculator: The borrower's 10, 15 or 20 percent on a project cost you enter.
- SBA 504 structure calculator: Bank loan, debenture and down payment for a project, and the fees that sit around them.
- SBA 7(a) loan package checklist: A 7(a) package is the bank's usual file plus SBA's own list. Know which items SBA requires and you can have them ready before the first call.
- SBA 504 loan package checklist: A 504 project has three parties, two loans and a closing date set by a monthly bond sale. Build the package for all three.
- SBA 7(a) or 504: which fits your loan: Both are SBA loans, and they work differently. The choice usually turns on what you are buying and how much cash you can put in.
Related terms
- Change of ownership loan (SBA 7(a)): A 7(a) loan that finances buying an existing business or an owner's share of it. SBA requires an independent valuation, 10 percent equity and, for a new owner, debt service coverage of 1.25 to 1.
- SBA 7(a) loan: SBA's main business loan program. A lender makes the loan and SBA guarantees part of it: up to 85 percent of $150,000 or less and 75 percent of more, on loans up to $5,000,000.
- SBA 504 loan: A fixed-asset financing in which a bank lends 50 percent or more, a certified development company funds up to 40 percent through an SBA debenture, and the borrower puts in at least 10 percent.
- SBA collateral requirements (7(a)): SBA's rules for what a 7(a) lender must take as collateral and how each asset counts, such as improved real estate at 85 percent of value. A request must not be declined only for thin collateral.
Sources
Plain definitions for orientation, not legal, tax or credit advice. A lender's own policy decides what it will do.