For SBA lenders
Short answer
No, a promissory note from a third party to the borrower generally cannot be considered part of the required equity injection.
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.
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.
Insider move
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.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
7(a) Loan Program — Terms, Conditions, and Eligibility
U.S. Small Business Administration · Official SBA source
SOP 50 10 - Lender and Development Company Loan Programs
Last checked 2026-06-13. Official sources control — verify before relying on any rule for a live deal.
Last reviewed 2026-06-13 · SBA sources checked through 2026-06-13. DealRoom analysis of public SBA 7(a) lending records (FY2020–present). Grounded in the current SBA rulebook; verify against the official sources above before relying on it for a live deal. Not legal, tax, or financial advice, and not an approval decision.
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