SBA loan basics
Short answer
Generally, no, funds that are borrowed to make the equity injection (down payment) are typically not allowed for an SBA 7(a) loan, as the equity must be 'unencumbered.'
The SBA requires the equity injection to be from the borrower's own unencumbered resources. This means the funds should not be borrowed, as borrowing for the down payment increases the borrower's overall debt burden and dilutes their 'at-risk' capital. There are very limited exceptions, but typically, a loan used for the down payment would be viewed as additional debt that makes the business less creditworthy.
An entrepreneur secures a $50,000 personal loan from a credit union, planning to use it for the 10% down payment on a $500,000 business acquisition. An SBA lender would likely deem these funds ineligible for the equity injection because they constitute borrowed money, thereby increasing the borrower's financial leverage and risk.
Insider move
Lenders meticulously verify the source of the equity injection to ensure it is not borrowed funds. If the down payment is sourced from another loan, it undermines the purpose of the equity injection, which is to demonstrate the borrower's personal financial commitment and reduce the overall debt-to-equity ratio.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 - Lender and Development Company Loan Programs
Last checked 2026-06-14. Official sources control — verify before relying on any rule for a live deal.
Last reviewed 2026-06-14 · SBA sources checked through 2026-06-14. 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.
More on what the down payment is
Terms in this answer
This page answers “Can I use a loan from a non-SBA lender as part of my equity injection?” for SBA 7(a) business buyers — a short answer, the detail, and official sources — from DealRoom.so SBA Intelligence. It is general information, not legal, tax, or financial advice, and DealRoom is not a lender.
Source: DealRoom.so SBA Intelligence, based on public SBA, lender, franchise, FDIC, and related records. DealRoom is not a lender and does not guarantee financing.
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