For SBA lenders
Short answer
Lenders must obtain a settlement statement (HUD-1 or Closing Disclosure) from the refinance, bank statements showing the funds received, and evidence of the funds' transfer to the business or escrow. It must be demonstrated the funds are unencumbered.
When equity injection comes from the proceeds of a personal residence refinance, the lender must verify that the funds are genuinely from the refinance and are truly unencumbered. This involves tracing the funds from the refinance closing to the borrower's account and then to the equity injection. The lender must ensure the refinance itself is not part of a scheme to circumvent equity requirements.
A borrower refinances their home, receiving $100,000 cash out. To use $75,000 for equity, the lender requires the Closing Disclosure from the refinance, bank statements showing the $100,000 deposit, and a wire confirmation showing the $75,000 moved to escrow for the business acquisition.
Insider move
Lenders must confirm the refinance proceeds are not encumbered by another loan or obligation that would effectively reduce the true equity. The source must be clearly documented to avoid any 'loan for equity' issues.
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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