“The Lender must determine if the equity position [of the target company], any required equity injection and the pro forma debt-to-[net]worth are acceptable based on the factors related to the type of business, experience of management and the level of competition in the market area. The Lender must include a detailed discussion of … any required equity injection.”
SBA.gov
What is Equity Injection?
Equity injection refers to the cash and assets that a borrower will contribute to a business or that are owned by the business that will help make the business successful.
There are two circumstances in SBA transactions whereby the borrower is required to make a minimum equity injection of 10%; those are purchasing a business or starting up a business.
It is important to note that the SOP sets minimum standards for us to follow and as prudent lenders we may require the borrowers to make an equity injection that is greater than 10% based on our assessment of risk.
Additionally, it is very important that we show a good paper trail of where the equity injection is coming from and know what is allowed as an equity injection.
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