Where do you guys come up with your 5% equity injection for the SBA loans?

May 23, 2024

by a searcher from Louisiana State University - E. J. Ourso College of Business in Phoenix, AZ, USA

Where do you guys come up with your 5% equity injection for the SBA loans. Are there angel investors / firms that are centered around getting your SBA loan across the finish line. Please provide links or whatever information you have.

Thanks

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

As it relates to the equity for SBA 7A loans the sponsor(s) do not have to provide all of the equity. You can raise that equity from friends and family or outside investors. Just keep in mind if any investor has a 20% or greater ownership interest the SBA will require them to guarantee the loan as well. However, you can have outside investors bring 100% of the equity to the table and their ownership can be at a level below 20%. The SBA and lenders identify the risk sponsors are taking on transaction from an operating and guarantee perspective.

Now with that said, many lenders want to see some sort of minimum equity investment from the sponsor(s). That could be a relatively low amount, but they prefer to have the sponsor invest something into the transaction. We do have some lenders that will consider deals on a case by case basis without any hard equity in the transaction from the sponsor(s), but in those cases the sponsor(s) typically need to be bringing something else to the table like strong operational experience, equity on their personal financial statement, etc. Happy to discuss your particular situation and find out how we can assist. You can reach me here or directly at redacted

Reply by a lender
in Stuart, FL, USA

Hi Jeremy, there are a host of ways to get there but keep in mind, only 5% equity injection from the main sponsor is going to be a lender discretion decision. Some lenders will not even do this, others will. You can get there by having the seller hold a seller note for 5% of your required 10% equity injection. The seller note will need to be on a minimum of a 24 month standby for it to qualify toward your equity injection. As others have pointed out you can whittle your 5% amount down from there by bringing on investors however that is certainly going to be a lender discretion decision. Contrary to popular opinion there is no one lender that says “boom” give us 50 grand and we'll lend you enough money to cover a 7 or $8 million loan. When you hear stories like that, that is one situation where that borrower got a deal closed and it worked for that lender. Every deal stands on its own merit, and every deal has to be structured in a way that makes sense for the risk the lender is willing to take. There is no one-size-fits-all. How's the credit? How's the collateral? Is there outside income? Can we cross collateralize another entity? How long has the business been around? Are there customer concentrations? What are the buyers’ translatable experiences? What role will the investors play? Hope this paints a more clear picture for you let me know if you need assistance thanks.

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