Seeking advice on documenting equity injection for SBA 7(a) loans

by a searcher from University of Virginia-Darden - Darden School of Business

5 months ago

I’m on a self-funded search to acquire my first company and still learning about the SBA 7(a) loan program. Can anyone offer advice or point me to resources on how to correctly document the equity injection for an SBA 7(a) loan? I understand that using personal accounts for expenses might be preferable, but I’ve also read about the importance of having a three-month history in a business account before applying. Additionally, how should I track due diligence costs to ensure they are counted correctly towards the equity injection as per SBA guidelines?

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lender from Eastern Illinois University

Great question. It does not matter where the equity is coming from and it does not have to be all in one business account. You just need to be able to prove the proof of equity going back 90 days. So you can provide accountant statements from multiple accounts going back to show that equity. Up until the day of closing you will need to show where the funds are coming from.

If you move money between accounts or are showing a large deposit in one of the accounts you intend to use and that deposit is necessary to be part of the equity, then the SBA lender is required to go back and source where that deposit came from and be sure that money is seasoned as well.

If you pay any expenses in advance, such as deposits to lenders, deposit to sellers, etc., you can get credit for those deposits towards your equity. You will just need to provide the bank statements for the account the funds are coming from going back 90 days alone with a copy of the cancelled check.

You can source equity from brokerage accounts, personal deposit accounts, business accounts, retirement accounts (either as a distribution or a self-directed IRA), home equity loans, etc. Again, so long as you can show you have the funds going back 90 days between these accounts or the source accounts you are good.

I hope this helps to clarify. If you have additional questions you can reach me here or directly at --@----.com

5 months ago | like reply | 1 like

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