For SBA lenders
Short answer
Lenders must verify the personal line of credit's approval and disbursement, obtain a copy of the security agreement for the non-personal real estate, and confirm the borrower's legal right to pledge that collateral. The underlying collateral must be clearly unencumbered to ensure the line of credit funds are truly available.
Funds from a personal line of credit can be used for equity injection if the source of the funds is clearly verifiable and the line of credit itself does not create a new burden on the small business or its principals beyond acceptable levels. When secured by non-personal real estate (e.g., an investment property owned by the borrower), the lender must verify the line of credit has been fully drawn, the funds are in the borrower's account, and the real estate collateral is fully owned by the borrower and has sufficient unencumbered equity. The lender must also ensure the repayment of this personal line of credit does not impair the borrower's ability to repay the 7(a) loan.
A borrower plans to use $100,000 from a personal line of credit secured by a rental property for equity injection. The lender requires the line of credit agreement, proof of funds disbursement to the borrower's account, and a title report on the rental property to confirm sufficient equity and the absence of prior liens, ensuring the equity is liquid and legitimate.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
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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