Equity Injection and Sources and Uses: How a Study Shows Where Every Dollar Comes From

Every loan request rests on a statement with two columns. The left column lists what the project will cost, line by line, from the land to the last closing invoice. The right column lists who pays for each dollar: a senior lender, a program lender, a seller who agrees to carry paper, and the owners. The two columns must reach the same total, and the line that makes them agree is nearly always the borrower's equity. That makes the equity figure the most exposed number on the statement: it is a residual, so every error elsewhere on the statement comes to rest on it.

This article sets out how a feasibility study builds the sources and uses statement, what each financing program's own text counts as equity, when borrowed money may stand in for cash, and why the equity line is solved last, after the loan has been sized to the cash flow. It reads 13 CFR 120 for SBA 7(a) and 504 loans, 7 CFR 5001 for USDA Business and Industry guarantees, and the interagency real estate lending guidelines printed in 12 CFR 365 for conventional bank loans. The program articles of this series treat each rule set in depth: the 504 project split, the B&I equity test and the supervisory loan-to-value limits. This article stays with the statement, the one document that ties those rules to a single set of numbers. Readers who want the ratio that sizes the loan will find it built step by step in the article on debt service coverage, and the evidence behind each cost line is the subject of the article on construction cost evidence.

Conventions. This article follows the conventions of the Loan Analytics worked examples. Coverage is tested against the program floor the site's program page states, where the program has one, and against a stated 1.25x lender assumption, and the higher of the two binds. Equity is measured at the loan the cash flow supports, with fees recomputed on that loan. An acquisition is tested on the seller's historical earnings, not on projections.

The second of those conventions decides most of what follows. An equity figure computed on the loan the borrower asked for, rather than on the loan that coverage allows, answers a question nobody at the credit committee is asking.

Three Tests a Sources and Uses Statement Must Pass

A sources and uses statement is evidence only if it passes three tests, and a reviewer can run all three in a few minutes.

The first test is completeness of the uses. The column has to hold every cost the project incurs before it can operate, including the costs no lender in the stack will finance. The USDA regulation writes this discipline into a definition: total project costs are the costs of the completed project, "including ineligible project costs," while total eligible project costs are only the sum of the eligible ones ^[1]. That distinction is worth borrowing under every program. Opening working capital, pre-opening payroll and marketing, deposits, the closing costs of each loan, the guarantee fee and interest during construction are real cash needs whether or not a program will pay for them, and a statement that drops them understates the equity the owners must find.

The second test is footing. Total sources must equal total uses, to the dollar, at the same date. A statement that comes close but does not foot is hiding a gap, and a gap left open on paper has to be closed by someone at closing, with money nobody has tested. Every model table in this article carries a line that subtracts the sources from the uses, and the line reads zero in every column.

The third test is evidence for each line. Each use should trace to a bid, a purchase contract, an equipment quote, a fee schedule or a labelled assumption; each source should trace to a term sheet, a commitment, a bank statement, a signed note or an appraisal of contributed property. The B&I rule makes the link to the closing documents explicit: a balance sheet as of loan closing is required, and it should show the new debt and the use of proceeds ^[2]. Under that rule the sources and uses statement is, in effect, a draft of the closing balance sheet, and it should be built so that it can become one.

A fourth question sits behind the three: timing. Some uses are paid long before the permanent loan funds, such as deposits, design fees and earlier land purchases, and some sources arrive late. A 504 Project usually needs interim financing, often from the lender that later supplies part of the permanent loan ^[3], and the payoff of that interim loan, points, fees and interest included, counts as an eligible Project cost ^[4]. The B&I rule is stricter about order. Among the evidence a lender must give when it wants the guarantee issued while building work is still under way, the rule says "In all cases, borrower equity must be injected prior to any guaranteed loan funds" ^[5]. A statement that shows only the closing date cannot show whether the equity is in the project when the rule says it must be, so a study should add a column for timing wherever construction is involved.

The Uses Column: Total Cost Before Any Financing Decision

The uses column is easiest to build in three groups, and keeping them apart prevents most of the errors this article describes later.

The first group is the cost of the project itself: land and buildings, site work, construction or renovation, a contingency, design and professional fees, and long-lived equipment. These lines do not depend on how the project is financed. The second group holds costs the project needs but a given program will not pay: working capital under 504, for example, or the fees of the senior lender. The third group holds the costs that exist only because of the loan and change with its size: the SBA guarantee fee, the administrative costs financed in a 504 Debenture, a USDA guarantee fee, and interest during construction. The third group is circular. It cannot be fixed until the loan is fixed, and the loan cannot be fixed until coverage has been tested, which is why the order of work matters.

What a program loan may pay for differs by program, and a study should mark each use with the program that can fund it.

7(a). The list of eligible uses is broad. Beyond land, buildings, construction and fixed assets, 7(a) proceeds may also buy inventory, supplies and raw materials, or serve as working capital ^[6], and a 7(a) loan may fund the purchase of an owner's stake, in whole or in part, or of all or part of a business itself ^[7]. The restrictions matter more to a sources and uses statement than the list. Loan proceeds may not fund payments, distributions or loans to the applicant's Associates, other than ordinary pay for services or a change of ownership under 120.202 ^[8], and the bar extends to replacing funds that were used for a restricted purpose ^[9]. A use line that sends money back to the owners at closing, such as repaying a loan an owner made to the business or a distribution timed to the closing, therefore falls inside the restriction unless one of its exceptions applies, and a study should flag any line that looks like one.

504. The Project cost is narrower and is defined line by line. It includes costs directly attributable to the Project, among them money the borrower spent from its own funds or a loan on Project land before applying to SBA ^[10], professional fees essential to the Project such as title work, architecture and engineering, appraisals, environmental studies and zoning or permit counsel ^[11], an overrun reserve on construction work of up to one tenth of its cost ^[12], and the repayment of interim financing ^[4]. The financing's own administrative costs stand apart: the regulation keeps them out of Project cost but lets the 504 loan and Debenture proceeds pay them ^[13]. 504 proceeds are barred from ancillary business expenses, a list that runs from working capital through counseling and management fees, organization costs and franchise fees to advertising ^[14], and from the fees of the Third Party Loan ^[15]. The detail of the 504 cost basis is set out in the 504 article linked above; for the statement, the point is that a 504 file always carries a group of uses the borrower pays in cash outside the Project.

B&I. The USDA rule defines eligible project costs as the expenses the Agency approves for the project as eligible uses of funds ^[16], and the investment branch of the equity test is measured against their total ^[1]. A use the Agency does not approve still belongs in the statement, as a cost the borrower funds, because the definition of total project costs includes it.

Conventional. The interagency guidelines set no list of eligible uses; the bank's own policy does. What the guidelines do set is the denominator of the loan-to-value ratio. When the loan finances the purchase of a property that already exists, the guidelines define value as the lower of what is paid for it and the estimate of its value ^[17], so on a purchase the price in the uses column is also the ceiling on the value the bank may lend against.

The Sources Column: Senior Debt, Program Debt, Subordinate Debt and Equity

Sources are best listed in order of claim: the first lien lender, any program lender behind it, subordinate debt such as a seller note or a borrowed contribution, and finally the owners' cash and contributed property. The order matters because each program's rules attach to a position in that stack.

In a 504 financing the regulation names the three sources of permanent financing, the borrower's contribution, Third Party Loans and the 504 loan, and gives the typical shares as 10, 50 and 40 percent ^[18]. Two rules fix the bank's position. The first lien loans have to equal or exceed the 504 loan in every Project, and they must reach half of total Project cost ^[19] in two cases: a borrower, or its Operating Company, with two years or less of operating history, and a Project whose asset is of limited or single purpose, whether it is bought, built, converted or enlarged ^[20]. As a general rule the Debenture's loan may not pass 40 percent of total Project cost, though every eligible administrative cost may be added on top ^[21]. Two further rules govern the source column itself rather than its shares. The contribution may come from a CDC or from any other source except an SBA business loan program ^[22], and no more than 50 percent of eligible Project costs may come from Federal sources, whether directly or through an intermediary ^[23]. The second rule reaches further than it looks. SBA treats the funds of a Licensee, a small business investment company, as derived from federal sources when the Licensee has Leverage ^[24], so a statement that pairs a 504 loan with an SBIC investment or a federally funded grant should mark every source as federal or not and add up the federal share.

The 7(a) source column is shorter, and its one hard limit is the loan amount: $5,000,000 is the most any one 7(a) loan may be ^[25]. The SBA guarantee is not a source of funds. It covers a share of the lender's loan, up to 75 percent for a loan above $150,000 unless law provides otherwise ^[26], and the source column shows the whole loan.

For a conventional loan the guidelines state that each institution should set its own internal loan-to-value limits, and that those internal limits are to stay at or below the supervisory ones ^[27]. The ratio counts all senior liens on the property ^[28], so a bank asked to lend behind another lender should compute its ratio on the debt ahead of it plus its own loan. Among the transactions the guidelines exclude from the limits are federally guaranteed or insured loans, provided the guaranty or insurance is at least as large as the part of the loan above the supervisory limit ^[29]. Whether the exclusion fits a given loan turns on the size of the guaranty against the excess; a study should not assume it and should print the ratio either way.

What Each Program Text Counts as Equity

The four rule sets use the word equity in four different senses, and a statement that does not say which sense it is using invites the strictest reading. Table 1 sets the texts side by side.

SBA 7(a): a criterion, not a number. Read in full, 13 CFR part 120 sets no 7(a) equity minimum. Section 120.150 tells lenders, CDCs and SBA that they may consider, as applicable, credit score or credit history, earnings or cash flow, or where applicable the applicant's equity or collateral ^[30], and it requires lenders and CDCs to use the same kind of commercial credit analysis they apply to similar loans without a guarantee ^[31]. The present wording dates from SBA's 2023 rule. Before it, the list of criteria included "Sufficient invested equity to operate on a sound financial basis" ^[46]; the rule cut the list to three criteria, with equity or collateral as the third ^[47]. Answering comments that asked for lighter equity requirements on loans to ESOPs and cooperatives, SBA said the revised section gives SBA and lenders the flexibility to underwrite those loans prudently, including in deciding "what equity or equity injection requirements should be placed on a loan for risk mitigation," and that further guidance would come in its Loan Program Requirements ^[48].

Any 7(a) minimum therefore has to come from that guidance or from the lender's own credit policy, not from the regulation. This series does not hold an official copy of the current version of that guidance and does not state what it requires. What can be cited is the site's own SBA program page. The site's SBA program page states that SOP 50 10 8, which took effect on 1 June 2025 ^[49], "reinstated a 10 percent equity injection for start-ups and changes of ownership" ^[50], and that SOP 50 10 8.1, in effect from 1 October 2026, goes further on acquisitions ^[51]; in the page's words, "The 10 percent injection on an Initial Acquisition cannot be reduced" ^[52]. The site's program page adds that "For 7(a), startups and Initial Acquisitions require at least 10 percent of total project cost, and for Initial Acquisitions it cannot be reduced" ^[32]. The model below uses that line, labelled as the site's statement, so that a reader can see how a study would test against it.

SBA 504: a contribution defined by form and by share. The borrower contributes cash, property acceptable to SBA that was bought with cash, or land that is part of the Project Property, measured as a percentage of Project cost with the administrative costs left out ^[33]. Two conditions each lift the minimum from a tenth to 15 percent: a borrower, or its Operating Company, with no more than two years of operations, and a Project whose building or structure serves a limited or single purpose ^[36]. Both together raise it to 20 percent; otherwise it is 10 percent ^[37]. Land the borrower bought earlier may be the contribution, with the buildings, structures and site improvements that will become part of the Project Property ^[34]. The regulation does not say in these sections at what figure such land is counted, so a study should state the basis it used (the purchase price, an appraisal, or both) and leave the decision to the CDC and SBA.

USDA B&I: equity on the balance sheet. The capital or equity requirement must be met with cash or earning assets that are contributed to the business and appear on its balance sheet ^[38]. "Equity cannot include appraisal surplus or bargain purchase gains" ^[39], and assets moved between related parties at fair market value, not at arm's length, must follow GAAP and carry evidence that the terms were market terms ^[53]. The minimums apply at the lender's closing of the guaranteed loan ^[54]. For an existing business the test can be met in more than one way, one of them an investment of equity or other funds of 10 percent or more of total eligible project costs, with grants and standstill subordinated debt counted ^[55]. The B&I article sets out every branch; the point for the statement is that B&I equity is a balance sheet quantity, so the study has to carry the sources and uses through to a projected closing balance sheet.

Conventional: a ceiling on the loan, and equity as a credit factor. The interagency guidelines contain no equity percentage. They name the level of equity invested in the property among the credit factors sound real estate underwriting should reflect ^[43], and where the loan finances a development or construction project or a finished commercial property, they expect the policy to go further ^[56], setting minimum requirements for the borrower's initial investment and for keeping hard equity in the project, such as cash, or an investment in the property that carries no lien ^[44]. For a study, the equity a conventional loan needs is then a residual, left once the bank's loan-to-value policy and its coverage test have each sized the loan, and the supervisory limits, 80 percent for commercial construction ^[57] and 85 percent for improved property ^[45], are ceilings on that policy, not targets. And a loan that reaches those levels earns no presumption of soundness from them, the guidelines add ^[58].

Borrowed Equity, Seller Notes and Standby Debt

Money the owners borrow to put into a project is equity to the business and debt to the owners. Each program text lets borrowed money stand in for cash only under conditions, and the conditions differ.

504. The borrower may borrow its cash contribution from the CDC or from a third party, provided the interest rate is reasonable ^[59]. If that loan is secured by any Project asset, it must be subordinate to the liens securing the 504 loan, and it may not be repaid faster than the 504 loan unless SBA approves in writing first ^[35]. The lender of the contribution may not take voting rights, stock options or any other actual or potential voting interest in the business ^[60]. Seller financing has its own rule: any financing that the seller of the Project Property provides must rank behind the 504 loan ^[61], with a narrow waiver for property that a national bank or other federally regulated lender holds as other real estate owned and that SBA judges to be of sufficient value to support the 504 loan ^[62]. The borrower may not prepay any Project financing that sits behind the 504 loan without SBA's prior written consent ^[63].

USDA B&I. A subordinated loan can be counted toward equity only if it was given for cash put into the business and that cash remains there until the guaranteed loan is repaid ^[39], and only after the Agency has received the note or other evidence of it ^[64]. The minimums themselves count such debt only where a standstill binds it until the loan is repaid ^[40]. On the face of the rule a seller note, given for property rather than for cash put in, would not qualify, and a note that pays currently would also miss the standstill condition; a study that counts one should show the Agency's acceptance of it.

SBA 7(a). The regulation is silent on borrowed injections. The site's SBA program page states that "Full-standby seller notes, other standby debt and non-controlling minority investors may together supply no more than half" ^[65], meaning half of the injection, and in its startup example the site's page states that "Fees paid to brokers or advisors do not count" toward it ^[66]. A study that relies on a seller note to reach a 7(a) minimum should name the note's standby terms and show the reviewer which part of the minimum it is meant to meet.

Conventional. The loan-to-value definition counts the senior liens on the property ^[28]. A note behind the bank's own lien is not a senior lien to that bank, and how a bank treats it in its ratio, its equity requirement and its coverage test is a matter for the bank's policy.

Across all four, a study should follow one method. Borrowed equity appears as its own line in the sources column, with its lender, rate, term, lien position and any standby or standstill terms. Its payments go into the coverage test unless its terms defer them for the life of the senior loan. And the statement reports two equity figures, the owners' own cash and total equity including the borrowed part, because a program minimum may be measured on either one. The fourth column of Table 3 shows why the distinction matters.

Equity at the Supported Loan: Why the Equity Line Is Solved Last

The conventions line at the top of this article fixes the order of work. Coverage sizes the loan; the loan sets the fees that depend on it; the uses are totalled with those fees; and equity is what remains. Written as steps:

1. Build the uses column without any financing cost that depends on the loan amount.
2. Test coverage on the requested loan against the binding minimum: the higher of the program floor the site's page states, where the program has one, and the lender assumption of 1.25x that the site's worked examples use.
3. Divide the cash flow by the binding minimum and by the annual payment on one dollar of loan; the result is the ceiling the cash flow puts on the loan, and the loan is sized at the smaller of that ceiling and the request.
4. Recompute every fee that depends on the loan at the sized amount: the 7(a) guarantee fee on the guaranteed share, the administrative costs financed in a 504 Debenture, or a USDA guarantee fee.
5. Total the uses with those fees, subtract the sized loan and any other debt, and report the result as equity, in dollars and as a share of total uses.

The fees are small next to the loan, but they are the reason the order matters. On a 7(a) loan above $700,000 the statute caps the guarantee fee at 3.5 percent of SBA's share ^[67], and adds 0.25 percent charged only on whatever part of that share exceeds $1,000,000 ^[68]. Processing alone can cost the borrower up to 1.5 percent, measured on the net Debenture proceeds, which is the most the CDC may charge for it ^[69]. A USDA guarantee fee multiplies three numbers, the total loan, the guaranteed percentage and the fee rate the Agency publishes for the year ^[70]. Each is a function of the loan. If the loan shrinks because coverage cannot carry the request, each fee shrinks with it, and an equity figure that keeps the fee at the requested amount is not computed; it has been carried forward from an earlier draft.

Table 2 lists every input to the two models in this article, each with its basis. The project is illustrative: a new business buys a building for its own use, renovates it and fits it out. Every project number is an assumption; the program shares, fee ceilings, prime rate and 7(a) term are sourced.

Rounded as shown; lines may not foot by one unit in the last place.

Table 3 applies the five steps to a 7(a) request in four columns.

In the base case the cash flow covers the request with room to spare: coverage on the requested loan is 1.31x, the loan the cash flow supports is $2,468,755, and the request of $2,350,000 stands. The guarantee fee on that loan is $63,594, total uses are $2,675,594 and the owners put in $325,594, or 12.2 percent of total uses. Against the 10 percent line the site's SBA page states for a startup ^[32], applied here to total uses with the fee included, the owners' cash clears the line by $58,034.

The second column cuts the cash flow by 10 percent. Coverage on the request falls to 1.18x, above the 1.15x floor the site's SBA page states ^[74] but short of the 1.25x lender assumption, so the assumption binds. The cash flow then supports $2,221,880, which is $128,120 less than the request, and the owners must find that difference on top of their planned cash. With the fee recomputed on the smaller loan at $59,990, owner cash comes to $450,111, or 16.8 percent of total uses. A statement that kept the fee at the requested loan would show $453,714, overstating the equity required by $3,603.

The third column raises prime by 2 points, which lifts the 7(a) rate to 11.75%. Coverage on the request drops to 1.13x, below both minimums, and the supported loan falls to $2,126,018. Owner cash rises to $543,276, or 20.4 percent of total uses, and the error from a fee held at the request grows to $6,299. A two point move in prime is a stress, not a forecast; the column is there because a sources and uses statement that works only at today's rate is a statement about today.

The fourth column keeps the base cash flow and rate but has the seller carry a $160,000 note at an assumed 8.00 percent over 10 years, paid currently. The note costs $23,295 a year, which the coverage test has to carry alongside the senior loan, so coverage on the request with all debt included is 1.20x and the senior loan the cash flow supports drops to $2,250,916. Total equity, owner cash plus the note, rises to 15.8 percent of total uses, which looks stronger than the base case. Owner cash tells the other story: it falls to $261,891, or 9.8 percent of total uses, and sits $5,390 below the 10 percent line the site's page states ^[32]. The borrowed equity did not replace cash dollar for dollar. Because its payments compete with the senior loan for the same cash flow, part of it went to replace senior debt the cash flow could no longer carry. Whether a note on standby would change that reading depends on its terms and on the program's rule, which is exactly why the statement should print both equity figures.

The table also shows what the conventions line protects against. In every column the sources equal the uses to the dollar, coverage at the sized loan is at or above the binding minimum, and the equity line moves whenever the loan does. A reviewer who changes one input can follow the change through to the last line.

The 504 Statement: The Contribution Is Not the Cash Requirement

A 504 file adds a second distinction. The contribution percentage in the regulation is a share of Project cost with administrative costs excluded ^[33], while the borrower's cash at closing also has to pay for every use the 504 Project cannot hold. Table 4 takes the same uses as the 7(a) model and finances them under 504, once for a borrower in its first two years of operation and once for an older one, both in a general purpose building.

Two uses move outside the Project: working capital, because 504 proceeds may not pay it or other ancillary business expenses ^[14], and the senior lender's closing costs, because Third Party Loan fees are ineligible too ^[15]. The 504 Project cost is $2,417,000, and the $195,000 outside it is the borrower's to fund. For the newer business the contribution at 15 percent is $362,550, but the borrower's cash at closing is $557,550, or 21.2 percent of the all in cost. For the older business the contribution at 10 percent is $241,700 and the cash requirement is $436,700, or 16.6 percent. In both columns the statement reports the cash, not only the percentage, because the cash is the figure the borrower must actually produce.

The first column shows the shares pulling against each other. With a borrower this young, the first lien has to cover at least half of Project cost ^[20], so the bank's $1,208,500 cannot shrink, and the five extra points of contribution are taken from the Debenture side instead: the net 504 loan falls to 35.0 percent of Project cost, leaving $120,850 unused under the 40 percent ceiling. The 504 loan is the only federal source here, so the statement has 15.0 points of Project cost to spare under the rule that no more than half of eligible Project costs may come from Federal sources ^[23]; a federally funded grant or an investment from a Licensee with Leverage ^[24] would have to fit inside that room. At the assumed rates both liens are covered at 1.88x for the newer business and 1.78x for the older one, so on these assumptions coverage does not constrain the 504 structure and the contribution rules do.

Set beside Table 3, the comparison is one of cash against debt service. Under these assumptions the 7(a) route asks the owners for less cash at closing, because it finances working capital and closing costs, and the 504 route asks for more cash in exchange for lower annual debt service on two amortizing liens at the assumed rates. Neither result is a recommendation; both are what a sources and uses statement is for. The worked examples on a 504 car wash in Maryland and a 504 RV and boat storage facility in New Jersey carry the same two pools, the Project and the cash outside it, through a full cost basis.

B&I: From the Sources and Uses Statement to the Closing Balance Sheet

The USDA rule measures equity where an accountant would, so a B&I study has two conversions to make after the statement foots. The first is the investment test: equity and other qualifying funds divided by total eligible project cost. Take a new business that is building, where the lender plans to request the loan note guarantee while construction is still under way ^[75]: its investment branch is a quarter or more of total eligible project cost ^[76], and its balance sheet branch is balance sheet equity of 25 percent, or debt no more than three times equity ^[41]. The second conversion is the projected balance sheet at closing. Balance sheet equity is judged on current and projected statements, and the closing balance sheet should reflect the new debt and the use of proceeds ^[2], so the study should print that balance sheet next to the sources and uses and show that one becomes the other.

Three lines of a B&I statement need particular care. Land or buildings the sponsor contributes count at a figure the balance sheet can carry, not at an appraised figure above it, because equity cannot include appraisal surplus ^[39], and a transfer at fair market value from a related party must follow GAAP and carry evidence of market terms ^[53]. Subordinated debt counts only with its note submitted ^[64] and, for the minimums, under a standstill for the life of the loan ^[40]. And where the lender wants early issuance of the guarantee, the timing column has to show the equity spent before the first guaranteed dollar ^[5].

The study itself can move the line. When the Agency judges a loan to carry higher risk it may raise the capital or equity requirement, and one of the factors it weighs is "the strength of the feasibility study and experience of management" ^[77]. Any study whose sources and uses statement does not foot, or whose equity line cannot be traced, is weak by any reading, and the rule lets the Agency answer a weak study with a higher requirement. The worked example on a B&I glamping resort in Ohio shows the investment test computed to the dollar against a cost table that includes the guarantee fee.

Conventional Loans: The Ratio Runs on Value, the Cash Runs on Cost

A conventional loan joins the sources and uses statement through the loan-to-value ratio, and the ratio and the statement use different denominators. The guidelines take value from an appraisal or an evaluation, as that document's opinion of market value ^[78], and on a purchase they cap it at the acquisition cost ^[17]. The statement, meanwhile, runs on cost, every cost in the uses column, not only the price of the property.

Two consequences follow for the equity line. On a purchase, an appraisal above the contract price adds nothing to the loan the ratio allows, because the price governs, so the equity the statement needs is the full cost less a loan computed on the price. On a project that is built rather than bought, the ratio rests on the appraiser's estimate, and an estimate that comes in below cost reduces the loan the same percentage limit allows against an unchanged budget; the shortfall falls on the equity line. The conventional article in this series works through the purchase case in numbers. A study is not an appraisal and states no value. It shows the cost side with its sources, leaves value to the appraiser, reports the equity under the bank's stated limit and under the coverage test, and lets the lower loan decide.

The bank's policy limit may sit below the supervisory ceiling, since internal limits are meant to stay at or under it ^[27], so a statement built for a bank should say which internal limit it used and where that limit came from.

What the Loan Record Shows About Equity, and What It Cannot

The Loan Analytics dataset is built from SBA's public loan files, and those files record loans, not capital stacks. In the 504 file the approval amount is the SBA and CDC loan amount, and a separate field carries the third party loan amount ^[79]; in the 7(a) file the approval amount is the total loan, with SBA's guaranty beside it ^[80]. Neither sheet of SBA's data dictionary defines a field for total project cost or for the borrower's contribution ^[79]. The files describe the age of the business only as a category ^[81], and nothing in them marks a building as limited or single purpose, so the record cannot show which 504 contribution percentage applied to any approval.

The program figures in Table 5 should be read with that in mind. In FY2025, SBA recorded 6,762 ^[82] 504 approvals for $7.80 billion ^[83], a sum of the Debenture layer alone, with the first liens and the contributions outside it. The 7(a) program recorded 78,078 ^[84] approvals for $37.29 billion ^[85], a sum of loans, not of project costs. The same caution applies to loan sizes. The median 504 approval for a car wash in FY2017 to FY2026 is $1,094,000 ^[86], against a median 7(a) car wash approval of $789,000 ^[87], and the median 504 approval for self storage, a class that holds RV and boat storage, is $890,000 ^[88]. The two programs' medians measure different layers of a stack: a 504 median is a Debenture that is typically a minority share of Project cost ^[18], while a 7(a) median is the whole loan. They are not project sizes and should not be compared as if they were.

The record does show how often approvals end without becoming working loans: 13.60 percent ^[89] of the 504 approvals dated FY2017 to FY2024 ended in cancellation, an approval-cohort floor, and the matching floors for car wash and self storage 504 approvals are 16.46 percent ^[86] and 19.15 percent ^[88]. The dataset does not say why any approval was cancelled, and nothing in it ties a cancellation to an equity shortfall; reading one into the other would assert a cause the data cannot support. How the floor is built is explained in Cancellation Is Not Charge-Off: The Two Ways an SBA Approval Can End Without Repayment, and what the file leaves out is listed in What the SBA Loan File Cannot Tell You: The Limits of FOIA Data in Underwriting. What a study can do is make sure the cash requirement, and its source, is settled and documented before an approval is sought.

The USDA side of the dataset is no closer to equity. USAspending's core B&I records for FY2025 hold 256 ^[90] new awards, and their face value before cancellations is $2,382.6 million ^[90]: the value of the guaranteed loans themselves. No public B&I record shows the borrower's investment or balance sheet equity.

Loan Data Behind This Article

Every figure in this table comes from the Loan Analytics loan dataset, analytics-loan-data freeze-3 (commit 360c856), and carries its key. SBA rates are approval-cohort floors and are withheld when fewer than 30 loans stand behind them. USDA figures are USAspending award aggregates; a USDA rate in the dataset is a credit subsidy rate, not a loss rate.

Where Sources and Uses Statements Go Wrong

The failures below are the ones the rules above make checkable, and a reviewer can test for each from the statement alone.

Uses that stop at the building. The statement carries land, construction and equipment and leaves out working capital, pre-opening costs and loan closing costs. The B&I definition of total project costs, which includes ineligible costs ^[1], is a sound standard for a study under any program, and under 504 those costs are cash outside the Project ^[14].

The same equity counted twice. A sponsor lists land as its contribution and lists the cash spent on that same land as a second contribution, or books the land at an appraised figure above what it cost. Under B&I, equity excludes appraisal surplus ^[39]; under 504, land bought earlier can be the contribution ^[34], but the statement must show the basis used, once.

Fees held at the request. The guarantee fee or the Debenture's administrative costs are computed on the loan requested and carried unchanged after coverage has cut the loan. In Table 3 the error is a few thousand dollars, but the habit behind it, an equity line that does not move with the loan, is the larger defect.

The loan held at the request. Worse than a stale fee is a stale loan. In the second and third columns of Table 3, the gap between the request and the supported loan is $128,120 and $223,982, and that gap is equity the owners must find.

A contingency counted as cushion. The contingency is a use, not a reserve the borrower keeps. Under 504 the reserve may not pass a tenth of construction cost ^[12], and at completion "the Debenture amount will be reduced by the amount that the unused contingency reserve exceeds 2 percent of the anticipated Debenture" ^[91].

Borrowed money shown as cash. A borrowed contribution or a seller note appears inside the owners' equity line with no lender, rate or term. Under 504 a borrowed contribution secured by Project assets must sit behind the 504 liens and may not amortize ahead of the 504 loan unless SBA first agrees in writing ^[35]; under B&I it counts only with its note submitted and a standstill ^{[64] [40]}. Its payments belong in the coverage test.

Cash going back to the owners. A use line repays an owner's loan to the business or funds a distribution at closing. Under 7(a) and 504 loan proceeds cannot fund payments, distributions or loans to Associates outside the stated exceptions ^[8].

Federal money stacked too high. A 504 statement adds a federally funded grant or an SBIC investment to the Debenture without totalling the federal share against the ceiling of half of eligible Project costs ^[23].

A total that does not foot. The simplest failure, and the one a reviewer can check first. The statement should end with a line that subtracts sources from uses and reads zero.

A Checklist for the Lender, the CDC and the Borrower

The questions below are the ones a reader of a sources and uses statement should be able to answer from the statement itself, without asking for a spreadsheet.

1. Does the uses column hold every cost of the completed project, including the ones the program loan cannot pay, as the B&I definition of total project costs requires ^[1]?
2. Does each use carry its evidence, and is each assumption labelled as one?
3. Do sources equal uses to the dollar, and is there a timing column wherever construction or interim financing is involved ^[4]?
4. Is the loan sized at whichever is smaller, the request or the largest loan the cash flow carries at the binding coverage, and are the fees that depend on the loan recomputed on that amount, as Table 3 does?
5. Is the equity reported twice, as the owners' own cash and as total equity including any borrowed part, with each borrowed source's lender, rate, term, lien and standby or standstill terms stated?
6. For 504: is the contribution measured on Project cost with administrative costs left out ^[33], is the right percentage applied and its trigger documented ^{[36] [37]}, is any seller financing subordinate to the 504 loan ^[61], and is the borrower's cash requirement stated in dollars, as Table 4 does?
7. For 504: is every source marked federal or not, and does the federal share stay within half of eligible Project costs ^[23]?
8. For B&I: is there a projected closing balance sheet that shows the new debt and the use of proceeds ^[2], and does every equity line rest on cash or earning assets on that balance sheet ^[38]?
9. For a conventional loan: does the statement say which internal loan-to-value limit it used, and on a purchase is the limit applied to the lesser of price and appraised value ^[17]?
10. For 7(a): if the statement tests against an injection minimum, does it say where the minimum comes from, given that the regulation states none ^[30]?

A statement that answers all ten tells the credit officer where every dollar comes from, and lets the officer change one assumption and watch the equity line move. That is the standard the site's worked examples are built to, and it is the standard a lender should hold any study to.

Related Pages on Loan Analytics

• The Loan Analytics methodology series (all articles)
• How a feasibility study is done: the Loan Analytics methodology
• SBA feasibility studies (7(a) and 504)
• USDA feasibility studies
• Loan data by state
• Loan data by asset class
• Worked examples (case studies)
• Worked Example: SBA 504 Express Car Wash Feasibility Study in Maryland
• Worked Example: SBA 504 RV and Boat Storage Feasibility Study in New Jersey
• Worked Example: USDA Business and Industry Loan Glamping Resort Feasibility Study in Ohio
• Debt Service Coverage in a Feasibility Study: How the Ratio Is Built, and Which Floor Binds
• SBA 504 Method: The Job Test, the Project Split and What a Study Must Show the CDC

Commission a Feasibility Study

Loan Analytics prepares lender-grade feasibility studies for SBA 7(a), SBA 504, USDA Business and Industry, conventional and EB-5 financing, built on the methods this series sets out. A study is not an appraisal: it tests whether a project's market, costs and cash flow can carry the debt a lender is asked to approve. To discuss a study for your project, contact Loan Analytics.

Daniel Smith, MAI, Loan Analytics