Securing a business loan, whether conventional or SBA-backed, often depends on one key factor: equity injection. Many borrowers are unsure how much they need to contribute and, more importantly, where that money can legally come from. 

Can you use a Home Equity Line of Credit (HELOC)? What about a gift from a family member? This guide breaks down the rules around equity injection, acceptable sources of capital, and post-close liquidity requirements, so you can move forward with confidence. 

What is equity injection?

An equity injection is the borrower’s personal financial contribution toward the total cost of a business project. It can take the form of: 

• A down payment made by the business owner to qualify for financing. 
• Investor capital provided in exchange for partial ownership in the business. 

What are acceptable sources of equity injection?

In most cases, equity injection must come from unborrowed personal funds, such as: 

• Personal savings
• Liquid assets
• Documented gifts
• Approved investor contributions
  

The typical requirement ranges from 10% to 20% of the total project cost, and lenders will closely examine the source of these funds. The key rule: the funds cannot create new debt for the borrower. 

How much do I need to inject - and what about liquidity?

Your equity injection shows lenders that you’re financially committed to the success of your business. 

• Required Injection Amount: Usually 10%–20% of the total project cost, depending on factors like industry, experience and cash flow. 

• Post-Close Liquidity: Lenders also want to see that you’ll have enough reserves after closing. This includes cash and accessible assets (excluding retirement accounts) to cover 3–6 months of personal and business debt payments. 
  
  

Can I use borrowed funds?

Generally, equity injections must come from unencumbered funds, that is, money that doesn’t add new debt. However, there are some exceptions: 

Home Equity Line of Credit (HELOC) 

A HELOC is a form of debt secured by your home, so it’s not typically preferred for equity injection. However, some lenders may allow it if your overall financial profile is strong and you can comfortably manage both the business loan and HELOC payments. 

Permissible with conditions: Talk to your lender to see if your situation qualifies. 

Personal Loans 

Using an unsecured personal loan to fund your equity injection is almost always disallowed. It’s considered “double-dipping” - financing one loan with another and doesn’t reflect true borrower commitment. 

Gifts from Family or Friends 

Gifts are acceptable if they meet strict documentation requirements: 

• Must be an irrevocable gift with no expectation of repayment 

• Requires a formal gift letter stating:  

• • Relationship to the borrower 

• • Gift amount 

• • Confirmation that it’s a non-repayable gift 

Lenders will scrutinize these documents to ensure the gift isn’t disguised as debt. 

Investor Contributions 

Outside investors can provide equity injection if they receive an ownership stake in return. This must be structured as an equity investment, not a loan. 

• Requires updated legal documentation (e.g., Operating Agreement or Partnership Agreement) 

• Must clearly show the investor’s ownership percentage 

Things to focus on

• Contributing the required amount from approved sources 

• Maintaining post-close liquidity 

• Providing proper documentation for gifts or investor capital 

By doing so, you’ll demonstrate financial stability and commitment—two things lenders value highly. 

FAQs

Q: Can I use non-liquid assets for equity injection?

A:  Sometimes. Assets like equipment or real estate may count as “in-kind” contributions if properly appraised and documented. However, they’re rarely accepted as the primary source.

Q: Do I need to show where my funds came from?

A: Yes. Lenders require seasoned funds, typically held in your account for a minimum of 60 days. You’ll need bank statements to prove the money is legitimate and unborrowed. Additional bank statements may be requested if large deposits are present. 

Q:  What if I’m buying an existing business and the capital is tied up?

A:  If the seller retains a share or there’s an escrow holdback, it may help meet equity requirements. But you’ll still need to show your own cash injection and liquidity separately.