What is an equity injection? Definition, formula and example

This is for buyers planning to use an SBA loan, and for sellers asked to carry a note. By the end you will know what an equity injection is, how to work it out, where the money may come from under the SBA rules in force since 1 October 2026, and the mistakes that delay closings.

What is an equity injection?

An equity injection is the buyer's own stake in the deal. It is the part of the price that is not borrowed from the SBA lender. Most people call it the down payment.

Lenders want it because a buyer with money at risk works harder. It also gives the loan a cushion if the business is worth less than the price.

The rules sit in the SBA's rulebook for lenders, called SOP 50 10. The current version on the SBA's SOP 50 10 page is 8.1, effective 1 October 2026. The SBA announced it in Information Notice 5000-880695. If you are new to the loan itself, start with our note on the SBA 7(a) loan.

How is the equity injection calculated?

The formula is short:

Required equity injection = total project cost × 10%

Total project cost is everything the loan package pays for. That is usually the purchase price, plus any working capital, plus closing costs. Ask your lender which costs it counts, because that changes the base.

Then the money is split into two buckets. A bank summary of the new rules from Grasshopper Bank describes them this way:

• Unlimited sources. The buyer's own cash, gifts, grants, and personal loans that are repaid from outside the business. At least half of the required injection must come from here.
• Limited sources. A seller note on full standby, other standby debt, and money from passive minority investors who each own under 20%. Together these may cover no more than half.

So the second formula is:

Minimum from unlimited sources = required injection × 50%

For a first-time buyer, which the SBA calls an Initial Acquisition, the 10% cannot be reduced or waived. When an existing business buys another in the same industry, or owners buy each other out, the lender may lower it if set conditions are met.

Worked example

An illustrative home-services purchase. The numbers are made up but add up.

The buyer brings $112,500 of cash. The seller carries a $112,500 note and gets no payments until the SBA loan is repaid.

A passive investor's money would share the same $112,500 limited bucket as the seller note. It would not add to it.

Where does it show up in a deal?

The injection shapes the deal from the very first offer. A letter of intent should say how much cash the buyer brings and whether any seller note is on full standby. Sellers often resist standby notes, because they wait years to be paid.

The lender checks where the cash came from. Expect to show bank statements and to explain any large deposit.

Larger deals have one more step. Grasshopper Bank's summary says the new rules require a quality of earnings report when the purchase price is $3,000,000 or more.

Our walk-through of using an SBA loan to buy a business covers how the pieces fit. If you are searching for a deal now, our buy-side service helps with sourcing, structure and financing introductions. Acquisitions.com is an advisory firm, not a lender, and the loan itself comes from a third-party SBA lender.

Common mistakes

Counting a normal seller note as equity. A seller note only counts toward the injection if it is on full standby. That means no principal and no interest for the whole life of the SBA loan. A note with payments is debt, not equity.

Planning on investors for the whole 10%. Under 8.1, passive investors share the limited bucket with any standby note. At least half must come from the buyer's own sources.

Forgetting working capital and costs. The 10% applies to the total project cost, not only to the price. A buyer who saves exactly 10% of the price will often come up short.

Using borrowed money with no outside repayment. A personal loan only counts if it is repaid from income outside the business. Money borrowed against the business you are buying does not count.

Relying on old rules. The SOP changes often. Check the current version with your lender, and ask a lawyer or CPA before you sign.