SBA loan down payments: how much you need

What is an SBA loan down payment?

Definition

Equity injection: the cash or other qualifying value a borrower puts into a project financed with an SBA loan. It’s the SBA’s term for a down payment, and on 504 loans it’s often called the borrower contribution.

Equity matters to lenders because it shows you have your own money at risk, and it gives the loan a cushion if the project costs more or earns less than planned.

Two things make SBA down payments different from a mortgage down payment:

• It’s usually measured against the total project cost, not just the loan. If a business purchase includes working capital and closing costs, those count toward the project, so they raise the equity needed too.
• The SBA sets the minimum only in certain situations. For start-ups, business purchases and every 504 project, the SBA’s rules, SOP 50 10 8.1, set a floor. Otherwise, the lender decides.

Lenders can always ask for more than the SBA minimum. Where the SBA sets one, a lender can accept less only in the cases the rules allow, shown in the table below.

How much down payment does each SBA loan require?

The minimum depends on the program, how long you’ve been in business and what you’re financing:

Your situation	Program	SBA minimum
Start-up (generating revenue for 1 year or less)	7(a)	10% of total project cost
Buying a business you don’t already own	7(a)	10%, which can’t be reduced. A seller note on full standby can cover up to half.
Buying out a partner, or your business buying another business	7(a)	10%; the lender may reduce it when your business is strong
Working capital, equipment, refinancing or real estate for an established business	7(a)	No SBA minimum; set by the lender
Established business buying general-purpose property or equipment	504	10%
New business (operating 2 years or less) or special-purpose property	504	15%
New business buying special-purpose property	504	20%

A special-purpose property is a building designed for one kind of business, such as a hotel or a gas station, which is harder for a lender to resell.

Can a seller note cover part of the down payment?

Yes, for business purchases, within limits. A seller note counts toward your equity only if it is on full standby: the seller receives no principal or interest payments for the entire term of the SBA loan. Standby seller notes, other standby debt and minority investors’ equity together can cover no more than half of the required injection. The rest has to come from you.

A seller note that is paid during the SBA loan is still allowed, but it doesn’t count as equity. The lender counts its payments as debt when it checks your cash flow. Our guide to buying a business with an SBA loan walks through seller financing in more detail.

Where can your down payment come from?

Lenders verify your equity before the loan funds, so plan to show where the money came from:

• Cash savings. Money in your personal or business accounts is the simplest source. Expect the lender to ask for bank statements and to explain any large recent deposits.
• Documented money already spent on the project. Deposits, build-out costs or equipment you’ve already paid for may count if you can document them. Ask your lender before you assume they will.
• A seller note on full standby, for business purchases only, up to the limit above.
• Land or assets you already own. On some projects, especially 504 loans, property you already own can count toward your contribution. Ask the CDC or lender how it will be valued.

Other sources, such as gifts, retirement-account rollovers, home equity loans or outside investors, come with conditions or may not count at all. Ask your lender how it treats each one before you build your plan around it.

Talk to your lender before you move money between accounts or borrow against personal assets for the injection. Funds that appear suddenly can mean extra paperwork to prove where they came from.

How can you lower the cash you need at closing?

You can’t go below the SBA minimum where one applies, but you can often keep your total cash requirement down:

1. Finance eligible fees and closing costs. The SBA guaranty fee and many closing costs can usually be included in the loan instead of paid in cash. See SBA loan fees.
2. Use a standby seller note for part of the injection when buying a business.
3. Consider a 504 loan for real estate. An established business buying general-purpose property puts in 10%, and lenders may ask for more on a large 7(a) real estate loan. Compare the two in our 7(a) vs 504 guide.
4. Trim the project. Because the minimum is a percentage of total project cost, every dollar you take out of the budget lowers the equity you need.
5. Check whether the lender will reduce the minimum on a partner buyout or an expansion purchase, when your business has strong cash flow.

Be cautious of any offer that promises a zero-down SBA loan for a start-up or a first-time business purchase. The SBA’s minimum equity injection applies to both, and seller financing can cover only part of it on a purchase.

Why might a lender ask for more than the SBA minimum?

The SBA minimum is a floor. A lender may ask for more when it sees more risk, for example:

• Cash flow that only just covers the new payments
• Limited experience in the industry you’re entering
• A special-purpose property or collateral that would be hard to sell
• A thin or damaged credit history
• A purchase price that’s high compared with the business’s earnings

Different lenders draw these lines in different places. Before you apply, run your numbers through our borrowing estimator to see what your cash flow can support.

How do you find the right lender for your SBA loan?

Down payment expectations vary from lender to lender, especially on start-ups and business purchases. Lenders that regularly fund deals like yours tend to know which equity sources they’ll accept and how they’ll treat a seller note.

SBA Loan Connect ranks lenders using the SBA’s public 7(a) and 504 loan records, so you can see which lenders actually fund businesses like yours. Partner lenders are labeled, and getting matched is free with no credit check. See how we rank lenders or get matched with lenders.