Understanding the Latest SBA 7(a) Loan Program Updates
Looking to secure funding for your business? SBA 7(a) loans provide unmatched flexibility! You can combine seller notes, personal savings, borrowed funds, and assets to meet your equity injection requirements. Learn more about how the SBA 7a loan eligibility can help provide you with accessing capital.
Published 2/4/2025
How Entrepreneurs Can Overcome Capital Challenges with SBA 7(a) Loans
Starting a business often comes with a significant challenge for entrepreneurs—accessing capital. Whether it’s through seller financing, debt financing, or equity from partners, the need for financial resources is crucial to get a business off the ground. Each form of funding has its advantages, depending on the specific needs of the business.
However, navigating these options can be overwhelming. Entrepreneurs may worry about the long-term implications of taking on various types of financing, unsure of how it will affect the future of their business. Fortunately, the Small Business Administration (SBA) has made it easier for small business owners to access capital, particularly through SBA 7(a) loans. This popular loan program has recently seen changes that make it even more attractive to lenders and borrowers alike.
What our Advisors say
It makes the SBA world more flexible I think it’s opened up lenders, borrowers, brokers, and sellers alike to use the SBA 7(a) program… I think that’s just opening up the number of transactions we’re going to see which is in congruent with what we talked about at the beginning of 2025.
Bridge Financial Advisor, Robert P.
Understanding SBA 7(a) Loans and Equity Injection Requirements
SBA 7(a) loans typically require borrowers to contribute a 10% equity injection, even if collateral is limited. This 10% can come from various sources, and it’s crucial for entrepreneurs to understand their options. Here are some ways to meet the equity requirement:
Personal Cash Funds
If the borrower has personal savings, they can use those funds to cover the equity injection without issue.
Borrowed Funds (e.g., HELOC)
Borrowers can also use borrowed funds, such as tapping into a Home Equity Line of Credit (HELOC). However, keep in mind that this borrowed amount will be considered in the risk assessment process, adding to the borrower’s personal debt.
Seller Financing (Seller Notes)
One of the significant recent changes to SBA 7(a) loans involves the use of seller financing. If a seller is willing to negotiate the terms of a seller note, it can now be used to cover all or part of the equity injection. The seller note must be on “full standby,” meaning it will only be repaid once the SBA loan is fully paid off—or it can be structured as interest-only payments or “partial standby” for the first two years, after which the repayment terms are agreed upon by the buyer and seller.
It’s important to note that the seller note will be factored into the risk analysis performed by the bank, which will assess the borrower’s ability to repay the loan.
Asset Injection
Another way to meet the equity injection requirement is through an asset injection. For example, if a borrower owns land that will be used to build a new facility with the SBA loan, the value of that land can count toward the equity injection. However, the 10% equity requirement still applies. If the land’s value doesn’t meet the 10% minimum, the borrower will need to make up the difference with other forms of funding.
What our Advisors say
What we’re seeing already in 2025 is an enormous amount of SBA loans and transactions coming in. The volume is high the program is being utilized really well and we’re seeing people that are willing to invest into various different industries.
Bridge Financial Advisor, Robert P.
Bank Policies vs. SBA Guidelines
While the SBA guidelines may allow for these flexible forms of financing, each bank has its own internal policies regarding risk management. This means that even if the SBA permits the use of a seller note or other non-traditional equity injections, it doesn’t guarantee that a particular bank will accept them. Entrepreneurs should always check with their lender to confirm whether these options will be approved.
In conclusion, accessing capital to start a business can be daunting, but SBA 7(a) loans provide a flexible and accessible way to secure funding. Understanding how to use seller notes, personal funds, borrowed money, and assets as part of your equity injection can significantly ease the process. Just remember, the SBA guidelines are only one part of the equation.
Pro-Tip: Each bank has its own policies, so always check with your lender to ensure your funding plan aligns with their requirements.
