Reviewing Equity Injection

Equity Injection

Reviewing and properly documenting Equity Injection for SBA Loans

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3 Steps

Stages of equity injection verification

Documenting

Reviewing

Collecting

Introduction

Introduction

Equity Injection Requirements

Proper verification of Equity injection is crucial for SBA loans, especially on early loan defaults which are to be reviewed by SBA prior to honoring any guaranty.

Equity Injection requirements include diferent types of supporting documentation, which depends on the expense/equity type and where funds are sourced. Here are a few interactive examples identifying the most common eligible sources and uses, and best practices to document them.

Index

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Collecting

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Collecting

The first step: Request and collect injection documentation. In this stage, it is important to understand what type of injection is expected for each specific loan and set that expectation with the borrower as soon as possible.

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Real Estate Refinance

Per the CAM, a portion of the injection is equity in the subject real estate

Real Estate Acquisition

Per the CAM: Part of the injection is pre-paid Earnest Money (EM)

Construction or Start-up Loan

Per the CAM, part of the injection is a deposit made to the General Contractor (GC)

Other Sources of Injection

Per the CAM, a portion of the injection originates from a Corporate Guarantor or Third Party.

Credit Card Purchases

The borrower has notified you that pre-paid expenses have been made using a credit card (CC).

Congratulations!

As injection documentation is received we move to the review process.

Step 1 complete. Now Review

Next, we will review the documents to determine eligibility

2. Review

2. Review

Reviewing and comparing information

As you collect documentation and other useful information, the next step is to review all of it and compare it with the credit approval (CAM), confirming we can paint the whole picture and each expense remains eligible. If the information is not consistent with the loan approval (CAM), a PAM is required.

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Invoice Review - Borrower: ABC Inc.

EX: Loan is for a start-up of a franchise and you are verifying a $5,000 Architect Payment

Review Source of Funds: Applicant Owner Funds

EX: You are verifying a $5,000 Architect Payment made in March 15, 2024 via ACH from the applicant owner account

Review Source of Funds: Gifted or Third Party Funds

You are informed that a portion or all of the injection comes from a Third Party/ Non-owner source

Review Source of Funds: 401(k) Rollover

Credit has to approve the 401(k) rollover for eligibility

Congratulations!

Step 2 of 3 complete

Putting it all together....

This could be the single most important step of the injection process. Without proper justifications and supporting evidence, we are not able to demonstrate to SBA or auditors that the expenses were indeed eligible or that we prudently verified source of funds. A consistent naming convention and file organization is crucial in a shared/group file-sharing environment, as it helps others navigate your work more easily.

Documenting

Documenting

Documenting

Keeping in mind that others, including SBA auditors, will review the injection files, it is important that this folder can be easily followed. The injection worksheet is always the starting point for the reviewer, therefore, clear and helpful information is expected in this worksheet.

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Documenting: Seasoned in one account

$5,000 was paid to the Architect on 1/14 from John Smith's Acct 123. November and December bank statements are also in file with beginning and ending balances over $19,000.

Beginning Date

Owner name

Beginning Balance

Documenting: Borrower: ABC Inc - 2 bank accounts

$150,000 was paid to the seller for Earnest Money on 3/14. Below is the borrower bank statement showing the withdrawal. The settlement statement also shows this Earnest Money as a credit.

Not enough balance

2 months bk stmts from this acct are in file

Evidence of transfer to seller escrow account

Documenting: Owner: John Doe 3 bank accounts

$150,000 was paid to the seller for Earnest Money on 3/14 from Acct 7203 owned by ABC Inc, which is owned by John Doe. Acct 7203 received funds right before the EM payment, from acct 7202. This is the statement.

Not enough balance

2 months bk stmts from this acct are in file

Evidence of transfer to owner's 3rd account

Thank you for using this interactive Refresher

We understand there are many other scenarios that were not covered here. If you have any questions, please reach out to your Supervisor or Team Lead.