For SBA lenders

What specific documentation is required to verify equity injection funds originating from a borrower's existing business assets, such as equipment or inventory?

Short answer

When existing business assets are contributed as equity, the lender must obtain a formal valuation or appraisal of those assets, documentation of clear title, and verification that the assets are unencumbered. This ensures the value is legitimate and available.

The rule

SBA rules allow existing business assets to count towards equity injection, provided their value is properly established and they are unencumbered. This typically requires a third-party appraisal for equipment or inventory, or other verifiable documentation of market value. The lender must also ensure the borrower has full legal ownership and that there are no existing liens or encumbrances that would diminish the equity value.

Facts that matter

Existing business assets
Equity injection
Appraisal
Clear title
Unencumbered assets

Example structure

A borrower for a business acquisition plans to contribute existing equipment from another business they own, valued at $50,000. The lender requires an independent appraisal of the equipment and a UCC search to confirm no liens exist, thereby verifying the equity injection.

What specific documentation is required to verify equity injection funds originating from a borrower's existing business assets, such as equipment or inventory?

The rule

Facts that matter

Example structure

What lenders usually care about

Official sources