An equity injection is the cash a buyer puts into an SBA-financed business purchase, the down payment the bank requires before it funds the rest of the deal. On SBA 7(a) acquisition loans the required equity injection is 10 percent of the total project cost. In an employee buyout of an architecture, engineering, or surveying firm, that 10 percent is often split, with the buyer contributing 5 percent in cash and the seller covering the other 5 percent through a standby seller note.
How the 10 percent gets split
SBA rules set the equity injection at 10 percent. They do not require all of it to come from the buyer. A seller note placed on standby, meaning the seller takes no payments on it for a period the bank specifies, can count for up to half of the injection. That is where the marketing phrase as little as 5 percent down comes from: the buyer brings 5 percent, the seller carries 5 percent, and the bank funds the remaining 90 percent.
On a $2,000,000 firm purchase, the total injection is $200,000. A key employee buyer brings $100,000, the seller holds a $100,000 standby note, and the seller still walks away from the closing table with roughly 95 percent of the price in cash.
Where buyers find the cash
Five percent works out to $50,000 for every million dollars of purchase price. Most employee buyers fund it with a home equity loan or line of credit, which SBA lenders accept. When two or three key employees buy together, each one's share drops further. A three-person buyout of a $3,000,000 firm needs $150,000 of buyer cash, or $50,000 per person.
Why sellers agree to fund half of it
Because it closes the deal and the math still favors the seller. Carrying a 5 percent standby note in exchange for 95 percent cash at closing beats the alternative most retiring owners face, which is financing 50 percent or more of the price themselves and waiting years to collect. The structure is the engine behind the Step-Up Legacy Plan, and it is why employee buyouts that once looked impossible now close in months.
