Lender Working Capital Holdback - SBA 7a

September 22, 2025

by a searcher from Georgetown University in Brooklyn, NY, USA

I'm about to close my deal with my SBA 7a lender, and they informed me that they will holdback approx 5% of the loan amount (equal to approx 20% of my cash injection into the deal) in the form of an "LIP Holdback". I will have to request those holdback funds from the "Draw Funding Team" within 3 months of closing, and the unused portion will apply towards my principal after the three months. Approx 2% of the loan amount will be deposited into my checking account as "undocumented working capital". While I understand why the lender wants to have some control over my working capital, does anyone have experience with this process of Holdback funds? What will I have to show in these requests? Can I be denied?

Reply by a lender
from Touro University in Houston, TX, USA

Sounds like they dont see you needing all that working capital off the bat. When working capital requests exceed $50-$100k (relative to deal size and substantiating the need), lenders want to make sure the funds are being used properly. Per SBA rules, they can give you up to a year to draw on the funds but most lenders will do 3 months (having the holdback prevents the lender from selling the loan into the secondary marketing until the loan is fully disbursed and termed out) but some will do longer. Generally, they will give you a few draw requests per month where you request how much is needed, for what purpose, and provide substantiation.

Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

I guess my first question to you would be if this was in the original loan commitment? If it was, there is probably not much you can do about it prior to closing. It sounds like you are putting more equity in than the minimum required and they are giving you a higher loan amount and keeping some cash aside for additional working capital needs. It sounds like this would be a benefit to you versus starting with a lower loan amount. I have not run into this particular situation, so I would find out up front what they will require to release these funds. Good luck with things.

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