Glossary · Your money in the deal
Phantom equity
In short
This refers to funds that appear to be part of the buyer's equity injection but are actually derived from the business being acquired or from another loan that isn't properly disclosed. It's a major red flag for SBA lenders.
What it means in a deal
The SBA strictly prohibits using funds from the target business or other undisclosed loans as your equity injection. Lenders will scrutinize your source of funds through bank statements and other documentation to ensure your equity is truly "out of pocket" and not "phantom." This is a common pitfall for inexperienced buyers.
Official sources
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 Phantom equity
- Can funds from a home equity line of credit be used for my equity injection?
- Can I use funds from a home equity line of credit for my 10% equity injection?
- How is 'sweat equity' or future services treated for an SBA 7(a) loan equity injection?
- Can sweat equity or future services I provide to the business count towards the required equity injection?
- Can funds from a private equity firm count as equity injection for an SBA 7(a) loan?
- Can a borrower's sweat equity count towards the required equity injection for a 7(a) loan?
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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