SBA Loan Equity Injection in Houston and Galveston

If you are considering using an SBA (Small Business Administration) loan to finance your new business, you may be required to provide an equity injection. DRDA C.P.A. in the Houston-Galveston area works hard to help Texas small businesses find the financing they need to start up or expand.  DRDA CPAs understand the details of equity injections and can help you obtain the small business start-up funds you need.

An equity injection is the money a loan applicant must provide as a condition of receiving an SBA loan. When a borrower is required to make a cash investment (equity injection) into their business, it does two things. First, the borrower is financially committed on a personal level to the success of the business. Second, an equity injection reduces the amount of money that must be borrowed and financed. This results in less debt for the borrower and less risk for both the lender and the SBA.

According to the policies of the SBA, your lender is responsible for providing the SBA with the proof and documentation of the equity injection. This can be done as simply as providing a copy of the canceled check used to make the equity injection together with evidence that the finances were put into the business venture before the funds from the SBA were distributed. A bank statement is generally acceptable confirmation of this.

It’s important to understand, however, that there may be more proof of an equity injection needed than just these items. If the equity injection is more than 1/3 of the total loan amount or $200,000, (whichever is less), the source of the equity injection must also be documented. This serves as additional proof to the SBA that the funds were deposited into the business prior to the SBA loan monies.

It can be difficult to come up with the money for a required equity injection. However, it is possible to use the rollover funds from your current 401(k) to finance a BORSA plan. A BORSA plan is a Business Owner’s Retirement Savings Account and it allows you to use the money you have in your 401(k) to finance a new business venture without incurring taxes, penalties or other fees. By using your BORSA plan, along with an SBA loan, you can fund your new start up business or make improvements or expansions to your current business.

If you are considering an SBA loan for your new business venture and need further information about equity injections, contact the certified public accountants and business consultants at DRDA, P.C. today to find out how they can help you understand all that goes into the funding of an SBA Loan. They are specialists in creating and managing BORSA plans to make small business dreams come true for people throughout the Houston-Galveston area. Call (281) 954- 6040 today!