{"ok":true,"canonical_url":"https://dealroom.so/sba-7a/questions/how-does-an-earn-out-component-in-the-purchase-price-affect-my-required-equity-injection-f","api_url":"https://dealroom.so/api/public/questions/how-does-an-earn-out-component-in-the-purchase-price-affect-my-required-equity-injection-f","question":"How does an earn-out component in the purchase price affect my required equity injection for an SBA loan?","topic":"Equity injection","audience":"borrower","bot_mode":"buyer","short_answer":"An earn-out component generally does not count towards the buyer's equity injection, as it is a contingent payment based on future performance, not an upfront cash contribution.","rule":"Equity injection must be provided at or before closing and represent unencumbered capital. Earn-outs, being contingent payments, are typically considered part of the seller's financing but do not reduce the buyer's required cash or standby equity injection.","example":"If you buy a business for $1 million with a $100,000 earn-out, your minimum equity injection (e.g., 10% or $100,000) would still be calculated on the full $1 million purchase price. The earn-out would be an additional payment if performance targets are met, not part of your initial equity.","what_lenders_check":"Lenders treat earn-outs as separate from the initial purchase price for equity calculation. They ensure the earn-out structure does not create undue financial burden on the business or interfere with its ability to repay the SBA loan.","required_facts":["Earn-out structure","Contingent payment","Equity injection calculation","Purchase price definition","Future performance"],"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":"Can I use funds from a second mortgage on my personal home for my equity injection?","url":"https://dealroom.so/sba-7a/questions/can-i-use-funds-from-a-second-mortgage-on-my-personal-home-for-my-equity-injection"},{"question":"Can I use funds from a personal line of credit for my SBA 7(a) equity injection?","url":"https://dealroom.so/sba-7a/questions/can-i-use-funds-from-a-personal-line-of-credit-for-my-sba-7-a-equity-injection"},{"question":"Can I use funds from a business partner's personal savings for my equity injection?","url":"https://dealroom.so/sba-7a/questions/can-i-use-funds-from-a-business-partner-s-personal-savings-for-my-equity-injection"},{"question":"Is an equity injection always required when getting an SBA 7(a) loan?","url":"https://dealroom.so/sba-7a/questions/is-an-equity-injection-always-required-when-getting-an-sba-7-a-loan"},{"question":"Can money gifted from a family member be used for my SBA 7(a) equity injection?","url":"https://dealroom.so/sba-7a/questions/can-money-gifted-from-a-family-member-be-used-for-my-sba-7-a-equity-injection"},{"question":"Can personal assets like a car or equipment I already own count toward my equity injection?","url":"https://dealroom.so/sba-7a/questions/can-personal-assets-like-a-car-or-equipment-i-already-own-count-toward-my-equity-injection"}],"related_terms":[{"term":"Purchase price","url":"https://dealroom.so/glossary/purchase-price"},{"term":"Purchase price allocation","url":"https://dealroom.so/glossary/purchase-price-allocation"},{"term":"Equity injection","url":"https://dealroom.so/glossary/equity-injection"},{"term":"Foreign-Sourced Equity Injection","url":"https://dealroom.so/glossary/foreign-sourced-equity-injection"},{"term":"Minimum Equity Injection","url":"https://dealroom.so/glossary/minimum-equity-injection"},{"term":"Tangible Equity Injection","url":"https://dealroom.so/glossary/tangible-equity-injection"}],"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/sba-7a/questions/how-does-an-earn-out-component-in-the-purchase-price-affect-my-required-equity-injection-f","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."]}