Equity Injection % That Makes Sense in SBA Deal?

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February 04, 2026

by a searcher from University of Washington - Michael G. Foster School of Business in San Gabriel, CA, USA

For an SBA Loan funded acquisition, thoughts on if it would it be better to go higher than the commonly seen 10% equity injection maybe more towards 20-35% equity and thereby buying a smaller SDE business than you normally would? The thinking there is to avoid over-levering the business and mitigate against downside risk.
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Reply by a lender
from Cornell University in Los Angeles, CA, USA
Hi ^redacted‌ - nice to meet you. A lot of good answers here but I thought I'd chime in. Equity injection is a lever for approval - If a deal is borderline on DSCR (say 1.15x when lenders want 1.25x), injecting 15-20% instead of 10% can be the difference between approval and decline. Lenders love seeing more skin in the game. You can also push for more seller financing too. Don't shrink your target to reduce risk - Buying a smaller business doesn't necessarily mean less risk. A $300K SDE business with thin margins can be riskier than a $500K SDE business with strong fundamentals. Target the right-sized business for your goals, go in at 10%, and keep dry powder available. If the deal needs more equity to get approved or hit DSCR thresholds, you can always add it. But don't leave money on the table by over-equitizing from day one when SBA rates are already favorable. We have a lot experience financing various companies via the SBA. If you ever need help reviewing a deal, I am happy to help. We work with all the major SBA lenders. The bank pay us after your loan closes, so this is a 100% free service for you. You can email me directly at redacted or schedule a meeting with me: https://cal.com/francodeguzman/30min. Look forward to chatting!
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Reply by a searcher
from University of Washington in Seattle, WA, USA
If you've got extra cash available in a deal (of any size), every SBA lender I've ever talked to has permitted paying down additional principle and re-amortizing to lower loan payments (sometimes with a 1 month or 1 quarter notice), so you might consider only putting down the required 10% and holding back your other cash to preserve optionality for a few months to see how things go. The main thing that comes to mind though is that I don't think I've ever heard someone say they wish they'd have bought something smaller, but you often hear the opposite. So depends on the deal and risk of the specific business obviously but in general I'd lean away from the instinct to keep the deal small as a hedge against downside risk.
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