Important update: In May 2023, the SBA released updated guidance on how buyers can meet these equity injection requirements. The most significant changes are highlighted in light blue – like this paragraph.
What exactly is an equity injection in a business acquisition?
The amount of your own cash or assets you give to the seller in a business acquisition is often referred to as the equity injection. The term can be misleading because the equity is not being injected into the acquired business but is going directly to the seller.
The main point to remember is that the equity injection comes from your assets, not from a lender.
You Must Demonstrate ‘Skin in the Game’
Lenders and investors require a borrower to contribute a meaningful amount to an acquisition as skin in the game. The more skin in the game, the more a borrower has to lose if the business fails. This concept applies to both SBA loans and conventional loans. However, skin in the game can come in many forms as discussed below.
