SBA rules · SOP 50 10 8.1

Can a personal loan or HELOC be used for the SBA down payment?

Yes, a borrower may use borrowed funds such as a personal loan or HELOC to satisfy the equity injection requirement, but specific repayment source and subordination rules apply depending on whether the financing is under the 7(a) or 504 program.

Quoted from SBA SOP 50 10 8.1Every quote checked word for word

In detail

7(a) repayment source restriction: For 7(a) loans, proceeds from a personal loan are an eligible equity source only if repayment can be demonstrated to come from a source other than the cash flow of the business, and salary paid to the owner by the business does not qualify.
7(a) lender underwriting of borrowed equity: When an equity injection comes from borrowed funds such as a HELOC, the lender must address the proposed repayment terms as well as any standby or subordination terms that will be in place.
504 program subordination requirement: In the 504 Loan Program, the borrower contribution may be borrowed provided it is subordinate to the Third Party Loan and the 504 debenture.
504 repayment terms and sources: If the borrowed 504 contribution is secured by the Project Property, it may not be repaid at a faster rate than the 504 loan without prior written SBA approval; if collateralized by assets other than the Project Property, repayment may be demonstrated from the business cash flow or other sources.

The source

What the SOP says

“Cash that comes from a personal loan where repayment can be demonstrated to come from a source other than the cash flow of the business (the salary paid to the owner by the business does not qualify).

SOP 50 10 8.1, Chapter 1: Standard 7(a) Loans (Loans greater than $350,000) > Changes of ownership (lines 1685-1694)✓ Verified

“If the equity injection will come from any form of borrowed funds, such as a HELOC or seller financing in excess of the minimum Borrower injection requirements outlined above, Lender must address the proposed repayment terms as well as any Standby or Subordination terms that will be in place.

SOP 50 10 8.1, Chapter 6: SBA Terms and Conditions through Disbursement for all 7(a) Loans > Documentation of Equity Injection: (lines 2972-2979)✓ Verified

“All Borrowers must contribute at least 10%, which may be borrowed as long as it is subordinate to the Third Party Loan and the 504 debenture;

SOP 50 10 8.1, Chapter 1: Eligibility through Submission of Application > Borrower’s Contribution (lines 3443-3446)✓ Verified

“Only in situations where the borrowed contribution is collateralized by the Project Property, Borrower may not pay the loan for its contribution at a faster rate than the 504 loan (13 CFR § 120.912) unless it is approved in writing by the D/FA or designee; and

SOP 50 10 8.1, Chapter 1: Eligibility through Submission of Application > If the Borrower’s contribution is borrowed: (lines 3482-3485)✓ Verified

“If the borrowed contribution is collateralized by assets other than the Project Property, the Borrower must demonstrate repayment of the loan for its contribution from the cash flow of the business or other sources.

SOP 50 10 8.1, Chapter 1: Eligibility through Submission of Application > If the Borrower’s contribution is borrowed: (lines 3482-3485)✓ Verified

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