Equity investments under new SBA rules?

September 10, 2025

by a searcher from Johnson & Wales University in Raleigh, NC, USA

Hello, how is everyone structuring equity investment under the new SBA guidance? We’re running into pushback from the banks re: preferred returns. They want to see the equity investors be on standby for the life of the loan.

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Reply by a lender
from University of Central Florida in St. Petersburg, FL, USA

I just had a transaction where 20% of the business was owned by several investors who provided the equity injection (the other 80% was from our guarantors). We treated them as a traditional owners. There wasn't/can’t be any agreements in place for prearranged payments or distributions, so we didn’t require “standby”, since there really wasn’t anything to place on standby. They simply receive compensation the same way any other owner would through discretionary distributions or dividends. If there are prearranged terms for repayment, then your bank is essentially viewing it as debt, while still trying to count it toward equity injection by placing it on full standby

Reply by an intermediary
from Clemson University in Raleigh, NC, USA

It's actually even more complicated than that. I have worked with congress over the last ~10 months to get the SBA guarantee raised to $10M and make the investor guarantee period back to 2 years. The language has been drafted and I'm optimistic that it will be voted on before the end of the year. The language includes a provision for transactions closed under the 10 year SOP to be payable at the buyers option after 2 years. If it's an investor concern you may consider including language in the equity agreement that the business will commence debt service as soon as permitted by SBA SOP.

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