The Gift Letter
There are many instances where borrowers applying for an SBA loan to purchase real estate, acquire a business or franchise or obtain working capital for growth do not possess the required 10% minimum equity injection.
The good news is that the SBA permits the applicant to receive a monetary gift to assist with the equity injection. This gift may be given by any willing participant.
However, the source of the gift funds must be verifiable by the Lender. Therefore, the applicant is to provide the requisite documentation enabling the lender to verify the gift funds.
Requisite documents include:
- A copy of a check or wire transfer along with evidence that the check or wire was processed showing the funds were moved into the borrower’s account or escrow
- A copy of the statements of account for the account from which the funds are being withdrawn for each of the two most recent months prior to disbursement showing that the funds were available
- A subsequent statement of the borrower’s account showing that the funds were deposited or a copy of an escrow settlement statement showing the use of the cash
Gift funds cannot be borrowed, for example a cash advance from a credit card, though a Home Equity Line of Credit is an acceptable source of the monetary gift.
It’s important to note that the benefactor is required to attest to the nature of the gift by signature on a Gift Letter Form in the presence of a Notary Republic.
In conclusion, your ThinkSBA loan specialist will always discuss the source of the equity injection at the outset so that the potential requirement of a monetary gift may be identified early in the process. This will allow the benefactor to ensure they are able to provide the documentation necessary to properly verify the source of the funds.
My SBA Loan Pro
The My SBA Loan Pro Podcast is hosted by Your SBA Loan Pro, Ryan Smith. In each episode Ryan provides valuable information and best practices regarding the SBA loan program.
Each episode is approximately one minute in length and addresses topics related specifically to SBA 7(a) and 504 loan programs to purchase real estate, acquire a business or franchise and obtain working capital.
You’re encouraged to listen and subscribe to ensure you’re notified each time a new episode is available. Ryan publishes a new episode weekly on Tuesday mornings, unless he’s kidnapped to a deserted island of course.