$80,000 Of equity. The seller's note can count for $40,000 of it. Underwriting killed the "seller carries the whole down payment" plan in one call on an $800,000 business buy under SOP 50 10 8.1.
This is general information, not legal or financial advice. Confirm every number against the current SOP and your lender before you sign anything.
The one tip
On an Initial Acquisition (you buying a business you don't already own), SBA requires a 10% equity injection of total project cost. That injection cannot be reduced or eliminated. Seller debt only counts toward it if it is subordinated and on full standby for the entire term of the 7(a) loan — no principal, no interest. Even then, limited sources like that seller note may supply no more than half of the required injection.
Total project cost is not the purchase price. It is price plus closing costs, working capital, and every other use of proceeds that makes the deal operational (lines of credit and 504 loans are carved out).
Worked example
| Item | Amount |
|---|---|
| Purchase price | $720,000 |
| Closing costs and working capital | $80,000 |
| Total project cost | $800,000 |
| Required equity injection (10%) | $80,000 |
| Most a full-standby seller note can count | $40,000 |
| Cash you still need from an unlimited source | $40,000 |
| 7(A) loan size | $720,000 |
Unlimited sources include unborrowed cash (a documented gift works) and grants with no clawback during the loan term. Agent fees, advisory fees, and education expenses do not count as prepaid equity.
Second gate: Initial Acquisition needs a debt service coverage ratio of at least 1.25:1 on last fiscal year-end or the average of the last two. Assume a 10-year term at 10.5% for the math (that's an assumption — your rate will differ). Annual debt service on $720,000 is about $116,580. At 1.25x, historical cash flow has to clear roughly $145,725 a year on the tax returns, not on a projection slide.
If the seller will only do a note that pays interest in year one, that note is not equity for SBA. It is more debt on the coverage test.
Do this week
- Build total project cost on one page: price, closing, working capital, fees.
- Multiply by 10%. That is your floor. Cap any seller note at half of that floor.
- Put the seller note on full standby for the 7(a) term, using SBA Form 155 or the lender's equivalent, with the note attached.
- Show the other half as cash already in your account, or a gift letter with a bank trail.
- Pull two years of business tax returns and run the 1.25x coverage test yourself before a lender does.
- Ask your lender which SOP version your file will use. Loans that get an SBA loan number on or after October 1, 2026 use SOP 50 10 8.1.
Your lender can layer stricter overlays on top of SBA's minimums. Ask which rules are SBA's and which are theirs.
Sources: SBA SOP 50 10 (Lender and Development Company Loan Programs), Appendix 15; SBA Information Notice 5000-880695 (SOP 50 10 8.1 effective October 1, 2026)
Verified against SOP 50 10 8.1 text: October 3, 2026.