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Thursday, July 31, 2008

Daily Observations - Equity Injection

Like last night tonight's will again be short and to the point.

Once again this changes is a CRUCIAL one that you must be aware of.

The area of equity injection has clearly been addressed. The requirements that there has to be a 10% equity injection for new business acquisitions and real estate transactions has been eliminated.

Before you start rejoicing realize that the equity injection is now a lender requirement, and how much of equity injection they want to require. The equity requirement is now a credit decisions left totally to the business judgment of the lender. The lender must include in its reports a complete credit analysis and a detailed discussion of the required equity and its adequacy.

The SBA now considers funds injected through the use of personal debt to be borrowed. What this means is that it is no longer acceptable to use as down payment money from an equity line of credit.

However there is one exception to the above rule and that is, if the debt can be repaid from outside sources. Therefore, if a spouse through outside income can support the equity line of credit debt then the use of the equity as a form of down payment is acceptable.

Visit our website that is only about SBA Information.

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