An SBA-guaranteed loan has many benefits over a traditional loan if you’re looking to start or buy a business, including lower down payment requirements than conventional bank loans. However, it can still be a challenge for many small businesses to gather the money for an equity contribution. I’ve broken down the different sources of equity that can be used to qualify for an SBA loan—including a few that may surprise you.

How does an SBA loan equity injection work?

A loan equity injection is a down payment that an applicant must provide to qualify for an SBA-guaranteed loan. It’s similar to putting a down payment on a home purchase; the buyer pays a percentage of the home’s purchase price to secure a loan for the remaining cost. While homes and traditional loans can require a 20-30% down payment, many SBA loans require as little as 10% in an equity contribution.

The most common SBA loans that small business owners pursue are the SBA 7(a) loan and the SBA 504 loan. The 7(a) loan is the most common type of SBA loan, and its long repayment terms and low interest rates are ideal for business financing. The 504 loan is great for businesses that want to make major purchases—it can be used for assets like real estate and equipment, or for renovating your building.

What sources of money can I use?

While you may first think of cash in the bank when considering an equity contribution, it’s not your only option. The SBA wants to make it as easy as possible for business owners to get the financing they need, so they’ve designed their loan programs with some flexibility on where your money can originate.

These sources of funds are eligible for use in an equity injection, either on their own or combined:

  • Cash from your business’s savings
  • Assets like stocks and bonds that can easily be converted to cash
  • Recently appraised business assets, including property, that you’ve owned for at least two years
  • A separate personal loan—but only if you’ll repay it from a different source of income than your business (such as an inheritance or a side job)
  • Other debt, if it’s on full standby throughout the SBA loan’s term
  • Money withdrawn from or rolled over from your 401(k) or other retirement account

Using your 401(k) or IRA for an equity injection

I know all too well the pitfalls of an early 401(k) withdrawal, having worked with small business owners using their retirement funds to start or buy businesses for the past decade. If you’d like to sidestep higher taxes or distribution penalties but want to use your retirement savings for SBA loan equity, a Rollover for Business Startup (ROBS) plan is a quick and easy way to do just that.

With a ROBS plan, you can set up a new retirement plan for your business corporation and rollover some or all of your funds in your current retirement plan. Once that’s done, your new retirement plan can purchase stock in your business, and you’ll have access to that money to make that down payment. If you’ve saved enough, you can consider using your money to directly fund your business without taking out a loan.

Though the SBA has long allowed borrowers to use ROBS plans as a source of equity for SBA-guaranteed loans, they formally recognized them as a source of equity injection in 2020. While it’s easier than ever to secure your SBA loan with your retirement savings, it’s best to work with a ROBS plan expert who can simplify the process and help you navigate decisions like choosing between a single employer plan or multiple employer plan.

Do you want to learn more about using your retirement plan as equity for an SBA loan? I’d love to start with a free consultation to see if this solution is right for you. Schedule a meeting with me or send me a note using our contact form. You can also reach out to me at or give me a call at 913.274.1930.