For SBA lenders
Short answer
No, generally equity injection funds cannot originate from a loan provided by another business entity owned by the borrower, as this does not represent unencumbered personal capital.
The equity injection must demonstrate the borrower's personal financial commitment and cannot be sourced from debt that would encumber the new business or the borrower's personal assets. Funds from another business owned by the borrower are typically considered debt or recycled capital, not true unencumbered equity.
A borrower acquiring a new business for $1,000,000 requires a $100,000 equity injection. They attempt to use $100,000 from their existing profitable consulting LLC as a 'loan' to the new entity. This would not be accepted as valid equity injection.
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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