Glossary · Your money in the deal
Disguised debt
In short
Money injected by the buyer or seller that looks like equity but functions like a loan, often with an expectation of repayment. The SBA scrutinizes this to ensure true equity injection and proper debt structuring.
What it means in a deal
The SBA is wary of arrangements that attempt to circumvent equity injection rules, such as a 'gift' that's actually a loan you intend to repay. Any funds counting as equity must be truly 'at risk' without a fixed repayment obligation from the business. Be transparent with your lender about all funding sources to avoid issues.
Official sources
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 — Lender and Development Company Loan Programs
U.S. Small Business Administration · SBA Standard Operating Procedure
Last checked 2026-06-15. Official sources control — verify before relying on any rule for a live deal.
Related terms
Common questions about Disguised debt
- Can I use an SBA 7(a) loan for debt consolidation of existing business debts?
- How is prior owner debt converted to equity treated for injection purposes?
- Can I use an SBA 7(a) loan to refinance existing business debt?
- Can an SBA 7(a) loan be used to refinance existing business debt?
- Can I use an SBA 7(a) loan to pay off personal debt?
- Does the SBA require a specific debt service coverage ratio (DSCR) for approval?
Defined by CapBench SBA Intelligence — plain-English definitions for business buyers, lenders, advisors, and AI agents, grounded in public SBA rules and records. Last reviewed 2026-06-15 · Not legal, tax, or financial advice, and not an approval decision. Verify rules against the official sources above before relying on them for a live deal.
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