Implication of SBA’s New Equity Injection Policy
May 14, 2025
Bob Coleman
Founder & Publisher
Implication of SBA’s New Equity Injection Policy
The recent revision to Chapter 25 of the SBA’s SOP introduces a significant change in how lenders must document equity injections for SBA-guaranteed loans.
What Changed?
Previous Policy:
Lenders were required to document equity injections based on their standard practices for similarly-sized, non-SBA guaranteed commercial loans. Failure to do so raised a rebuttable presumption that an early default was due to the absence of the required equity injection, potentially justifying a full denial of the SBA guaranty.
Updated Policy:
Now, lenders must document equity injections as specified in the Loan Authorization, ETRAN Terms and Conditions, or other loan documents. Failure to properly document these injections still raises a rebuttable presumption that an early default was caused by the absence of the required equity injection, justifying a full denial of the SBA guaranty. To rebut this presumption, lenders must provide credible evidence that the primary cause of the borrower’s default was something other than the lack of the required equity injection, such as the death of an irreplaceable key employee or an uninsured natural disaster that destroyed the borrower’s business premises and customer base.
Implications:
• Standardization: The change moves away from relying on a lender’s internal practices, instead standardizing documentation requirements across all lenders.
• Compliance: Lenders must now strictly adhere to the specific documentation requirements outlined in the loan’s official documents, ensuring that equity injections are properly verified and recorded.
• Risk Management: Proper documentation is crucial, as failure to comply can lead to the SBA denying liability on its guaranty in the event of an early default