One of the most common questions business owners ask about SBA loans is how much money they need to bring to the table. The answer depends on several factors, including the loan program, your business history, and the intended use of funds.
Understanding down payment requirements upfront helps you plan your financing strategy and ensures you're prepared when it's time to apply. Here's a comprehensive breakdown of what to expect.
Down Payment Requirements by Loan Program
Different SBA loan programs have different equity injection requirements. Here's what you'll typically need:
| Loan Program | Typical Down Payment |
|---|---|
| SBA 7(a) Loan | 10-20% |
| SBA 504 Loan | 10-20% |
| SBA Microloan | Varies by lender |
| SBA Express | 10% or less |
Factors That Affect Your Down Payment
Business Age and Experience
Startups and businesses less than two years old typically face higher down payment requirements. Lenders see newer businesses as higher risk, so they may require 20-25% equity injection compared to 10% for established businesses.
Loan Purpose
The intended use of funds influences down payment requirements:
- Working capital: Often 10-15% down
- Equipment purchase: Usually 10-20% down
- Real estate: Typically 10% for existing buildings, more for new construction
- Business acquisition: Usually 10-20% depending on deal structure
Special Purpose Properties
Properties with limited alternative uses, such as gas stations, hotels, or car washes, typically require higher down payments. Lenders may ask for 15-20% because these properties are harder to repurpose if the business fails.
Acceptable Sources for Your Down Payment
Lenders carefully scrutinize where your equity injection comes from. Acceptable sources include:
- Personal savings: The most straightforward option
- Business retained earnings: Profits accumulated in the business
- Sale of personal assets: Vehicles, investments, or other property
- Gifts from family: Must be documented with a gift letter stating no repayment is expected
- 401(k) business financing (ROBS): Rollover for Business Startups allows penalty-free use of retirement funds
- Home equity: May count as equity if properly structured
Strategies to Reduce Your Down Payment
Leverage Business Assets
If you're purchasing a business, existing equipment, inventory, and accounts receivable may count toward your equity requirement, reducing the cash you need upfront.
Seller Financing
In business acquisitions, the seller may agree to finance a portion of the purchase price. This seller note can sometimes count as part of your equity injection if structured properly with a standby agreement.
Consider SBA Express
For smaller loan amounts up to $500,000, SBA Express loans often have more flexible down payment requirements and faster approval times.
Find Out What You'll Need
Get a personalized estimate of down payment requirements based on your specific situation.
Check EligibilityPlanning Your Down Payment
If you don't currently have enough for your down payment, consider these steps:
- Start saving early: Begin setting aside funds as soon as you know you'll need financing
- Reduce expenses: Cut unnecessary business costs to increase retained earnings
- Build business value: Improving profitability makes your business more attractive and may reduce equity requirements
- Explore all sources: Consider ROBS, home equity, or family gifts as supplemental options
Understanding down payment requirements early in your planning process helps ensure you're financially prepared when the right opportunity arises. While SBA loans require less cash upfront than conventional financing, having adequate equity demonstrates your commitment and significantly improves your approval odds.