{"ok":true,"canonical_url":"https://dealroom.so/for-lenders/questions/can-a-borrower-contribute-a-promissory-note-from-a-third-party-as-part-of-their-equity-inj","api_url":"https://dealroom.so/api/public/questions/can-a-borrower-contribute-a-promissory-note-from-a-third-party-as-part-of-their-equity-inj","question":"Can a borrower contribute a promissory note from a third party as part of their equity injection?","topic":"Equity injection verification","audience":"lender","bot_mode":"lender","short_answer":"No, a promissory note from a third party to the borrower generally cannot be considered part of the required equity injection.","rule":"SBA policy requires that equity injection come from the borrower's permanent, unencumbered personal funds or assets. A promissory note, even from a third party, represents a debt obligation to the borrower, not a direct contribution of unencumbered equity into the business.","example":"A borrower for a $1 million acquisition presents a $100,000 promissory note from a friend, payable to the borrower, as part of their 10% injection. The lender must inform the borrower that this note is not acceptable. Instead, the friend would need to contribute cash or assets directly to the business as equity, or provide a fully subordinated loan to the business that meets SBA standby requirements.","what_lenders_check":"Lenders must ensure that all equity injection funds are genuine, unencumbered, and directly contributed by the borrower or equity investors into the business. Promissory notes to the borrower introduce debt and do not represent true equity and can lead to guaranty repair or denial.","required_facts":["Promissory note","Third party","Equity injection","Unencumbered funds","Debt obligation"],"source_families":["SOP 50 10 - Lender and Development Company Loan Programs","13 CFR Part 120 - Business Loans","7(a) Loan Program Terms, Conditions, and Eligibility"],"official_sources":[{"title":"SOP 50 10 - Lender and Development Company Loan Programs","url":"https://www.sba.gov/sites/default/files/2025-05/SOP%2050%2010%208%20Technical%20Updates%20effective%206.1.2025.docx"},{"title":"13 CFR Part 120 - Business Loans","url":"https://www.ecfr.gov/current/title-13/chapter-I/part-120"},{"title":"7(a) Loan Program Terms, Conditions, and Eligibility","url":"https://www.sba.gov/partners/lenders/7a-loan-program/terms-conditions-eligibility"}],"related_questions":[{"question":"What documentation verifies funds for equity injection transferred from a personal investment account?","url":"https://dealroom.so/for-lenders/questions/what-documentation-verifies-funds-for-equity-injection-transferred-from-a-personal-investm"},{"question":"How does a lender verify equity injection funds that are a cash gift from a non-family third party?","url":"https://dealroom.so/for-lenders/questions/how-does-a-lender-verify-equity-injection-funds-that-are-a-cash-gift-from-a-non-family-thi"},{"question":"Can a borrower's investment in a certificate of deposit (CD) count towards the required equity injection?","url":"https://dealroom.so/for-lenders/questions/can-a-borrower-s-investment-in-a-certificate-of-deposit-cd-count-towards-the-required-equi"},{"question":"What specific documentation is required to verify equity injection funds originating from a borrower's existing business assets, such as equipment or inventory?","url":"https://dealroom.so/for-lenders/questions/what-specific-documentation-is-required-to-verify-equity-injection-funds-originating-from-"},{"question":"How does a lender verify the source of gifted equity injection funds when the donor is a foreign national?","url":"https://dealroom.so/for-lenders/questions/how-does-a-lender-verify-the-source-of-gifted-equity-injection-funds-when-the-donor-is-a-f"},{"question":"How does a lender verify equity injection funds that are sourced from a personal line of credit secured by non-personal real estate?","url":"https://dealroom.so/for-lenders/questions/how-does-a-lender-verify-equity-injection-funds-that-are-sourced-from-a-personal-line-of-c"}],"related_terms":[{"term":"Promissory Note","url":"https://dealroom.so/glossary/promissory-note"},{"term":"Third-Party Equity Investments","url":"https://dealroom.so/glossary/third-party-equity-investments"},{"term":"Third-party loan","url":"https://dealroom.so/glossary/third-party-loan"},{"term":"Third-party agent","url":"https://dealroom.so/glossary/third-party-agent"},{"term":"Third-Party Report","url":"https://dealroom.so/glossary/third-party-report"},{"term":"Third-party appraisal","url":"https://dealroom.so/glossary/third-party-appraisal"}],"related_tools":[{"name":"SBA 7(a) payment & fee calculator","url":"https://dealroom.so/sba-7a/calculator"},{"name":"Find an active SBA 7(a) lender","url":"https://dealroom.so/lenders"}],"data_freshness":{"last_reviewed":"2026-06-13","sba_rule_sources_checked_through":"2026-06-13"},"citation":{"label":"DealRoom.so SBA 7(a) Q&A","url":"https://dealroom.so/for-lenders/questions/can-a-borrower-contribute-a-promissory-note-from-a-third-party-as-part-of-their-equity-inj","source_type":"DealRoom Q&A"},"caveats":["Grounded in the current SBA rulebook; verify against official sources before relying on it for a live deal.","Not legal, tax, or financial advice and not an approval decision."]}