Overview |
Equity Injection
What Is an Equity Injection?
An equity injection is the borrower’s required contribution to the overall transaction/project. It represents the borrower’s own investment in the project and is separate from loan proceeds.
Equity injection is required to ensure the borrower has meaningful financial participation in the project. By contributing equity toward total project costs, the borrower shares in the risk of the transaction alongside the lender and the SBA and therefore has “skin” in the game.
Equity injection generally takes two primary forms. The most common is a cash contribution from the borrower. In some transactions, equity injections may also partially be satisfied through seller financing, when the seller agrees to carry a portion of the purchase price on terms acceptable to the lender and the SBA. Equity injection is contributed at or before closing. Equity injection funds are not repaid and are not funded by loan proceeds.
In Action |
How Is Equity Injection Measured?
Equity injection is calculated as a percentage of the total project cost, not solely on the loan amount. The contribution may take different forms depending on the transaction structure.
Total project cost includes all costs necessary to complete the transaction, such as startup costs or purchase price, closing costs, and the SBA guaranty fee. The loan amount represents only the financed portion of those costs.
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