Sweat equity

Definition

Ownership earned by working rather than bought with money at closing.

Why It Matters

It is the phrase most often used to describe what a searcher contributes, and it is the one an SBA lender cares least about: the program wants a cash injection, and hours worked are not cash. Where it is real is between partners, where one puts in money and the other puts in the years, and there the honest version is a written vesting schedule rather than a handshake about who deserves what later.

In numbers: A partner earning 20% over four years of full-time work is receiving about $75,000 a year of value in a business bought for $1.5M, which is a salary decision as much as an ownership one.