SBA 7(a) Q&A
Short answer
An earn-out component generally does not count towards the buyer's equity injection, as it is a contingent payment based on future performance, not an upfront cash contribution.
Equity injection must be provided at or before closing and represent unencumbered capital. Earn-outs, being contingent payments, are typically considered part of the seller's financing but do not reduce the buyer's required cash or standby equity injection.
If you buy a business for $1 million with a $100,000 earn-out, your minimum equity injection (e.g., 10% or $100,000) would still be calculated on the full $1 million purchase price. The earn-out would be an additional payment if performance targets are met, not part of your initial equity.
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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