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NGExpert financial copywriter
Many loans administered by the U.S. Small Business Association (SBA) require a down payment – an amount of cash upfront paid by the borrower – in order to secure the loan.
The size of the down payment depends on how much money the loan is for and what type of loan it is.
Read on to learn how much an SBA loan downpayment is, which SBA loans require down payments and how to get the money for your downpayment.
Page written by Kat Cox. Last reviewed on March 12, 2024. Next review due October 1, 2025.
SBA loans are very popular for small businesses because they tend to offer lower interest rates and longer repayment terms than traditional business loans. If you qualify for an SBA loan, you may be able to get up to $5.5 million for your business. However, many SBA loans require a down payment to secure the loan. Much like a residential mortgage for a new home, you’ll pay a percentage of the loan’s value upfront to show that you’re invested in repaying the loan.
Not all SBA loans require a down payment. Also, it’s up to the lender who funds the loan to determine what kind of down payment to charge you, although there are minimums and maximums set by the SBA. It’s important to know which loan programs require a down payment and how much they expect you to pay before you apply.
The SBA offers a wide variety of loan programs, and each has different requirements. The down payment is different for each program, and the lender may require a different down payment depending on your individual qualifications as well. You can expect to pay 10-30% of the value of the full loan as a down payment, depending on how much money the loan is worth and your qualifications.
The SBA 7(a) loan program is the most popular among SBA loan programs. You can get up to $5 million and use it for almost any purpose to build your business, including working capital, commercial real estate, buying inventory and equipment and more. You can even use the money from an SBA 7(a) loan to refinance or pay down existing business debt.
For an SBA 7(a) loan, the minimum required down payment is 10% of the loan amount. So if you get a loan for $2 million, you’ll be expected to pay $200,000 to get the loan. The lender may decide to charge more than 10% if your loan is smaller or if you have a riskier profile, for instance, if you have a lower credit score.
The biggest exception to this 10% rule is the SBA 7(a) Express loan program. The lender gets to decide whether or not to charge you down payment for an Express loan, as long as they would do the same for a non-SBA loan. These loan funds have shorter application review times and tend to fund faster, but you can only get $500,000 for the loan.
There are other SBA 7(a) programs that don’t require a down payment, such as SBA export loans.
If you secure an SBA 504/CDC loan, you can expect to pay 10-20% for a down payment with a maximum of 30%. These loans can get you up to $5.5 million for major capital projects that will improve the community’s economic situation through job creation or other means. Major capital projects include buying or improving commercial real estate or purchasing big equipment, among other projects.
SBA 504/CDC loans are different from other loans because they’re funded by SBA-approved Capital Development Companies (CDCs) that put up 50% of the loan, a traditional financial institution, which puts up 40% of the loan, and the other 10% is funded by the borrower.
This breakdown can change if the lender determines that the borrower should pay a larger percentage as a down payment, for example, if they’re a startup or newer business. Also, if your local government is particularly interested in getting you to have your project in their town or state, they may offer to pay some of the down payment amount, too.
Not every small business will have 10% of a large loan amount available for a down payment. Some profitable businesses may be able to cut costs for a few months to generate the money for down payments, but this may not be an option for everyone. Many business owners will use their own personal money to help finance the down payment for an SBA loan.
If you don’t have a large amount of personal money available or a large asset, such as a house, to sell to get the funds, there are other ways you can generate the money for your down payment.
If you have retirement savings in a personal 401(k) or IRA, you can use it to pay for your down payment by turning it into a Rollover Business Startup (ROBS) plan. Unlike withdrawing the savings from your retirement account, using a ROBS plan allows you to transfer the money to another account which is then used to buy shares in your company.
The biggest drawback of using a ROBS plan is that your business has to be registered as a C Corporation. Otherwise, you won’t be able to sell stock in your business. The next biggest drawback is that you’re risking your retirement savings – and it could be a significant risk. But if you truly believe in your business plan, this can be a great way to put your money where your mouth is and go all in on your small business.
There are angel investors who will help small businesses cover the costs of starting or expanding their businesses. Angel investors usually have a large amount of money and will ask for a portion of the company in return. They may be more willing to cover the cost of a down payment for an SBA loan than the full cost of the loan.
Crowdfunding is another way to raise money for a down payment. You can ask friends or family to invest in your business or use a platform like Kickstarter to get your project out to the greater public. You may need to offer shares of your business or some kind of product or service to your investors, but this is a popular way for businesses to fund projects, including down payments for SBA loans.
Many SBA loans don’t typically require a down payment, especially if they’re for smaller amounts or very specific purposes. Of course, this depends on the lender and the specific type of loan you get, so make sure you understand the terms of your loan.
Most SBA microloans don’t require a down payment. These loans are usually for a much smaller amount – $50,000 or less – and are managed through non-profits. They’re also aimed at small businesses that may have trouble qualifying for larger loans.
The SBA CAPLines program is an SBA 7(a) financing program that usually doesn’t require a down payment. It’s not technically a loan program, but instead extends a small business a line of credit to help them cover the regular costs of operating their business. Because the line of credit is used as the business needs it and not as a lump sum all at once, it doesn’t really make sense to have a down payment in most cases.
The SBA offers disaster loans to small businesses during times of declared disasters, such as the COVID-19 pandemic or after major events like earthquakes, fires or other natural disasters. None of the three SBA disaster loan types require a down payment.
Most SBA Export Working Capital loans don’t require a down payment. These loans let small businesses that qualify get up to $5 million and help give them flexibility in negotiating export payments.
Use Swoop to find the right SBA loan for your small business. Simply register onlinea, answer a few questions and get personalized recommendations on financing solutions.
Below are some frequently asked questions (FAQs) about SBA loan down payments.
No, not all SBA loans require a down payment. For instance, disaster loans, export loans, most microloans and CAPLines don’t require a down payment. However this may be up to the discretion of the lender, so it’s important to discuss the terms of your loan with your lender.
The minimum down payment on a standard SBA 7(a) loan is 10%, but you may be required to pay more depending on the type of loan you get, the amount of money
Yes. If you qualify for an SBA disaster loan or certain microloan programs, you won’t need to make a down payment.
Written by
As a B2B finance content specialist, Kat Cox's goal is to distill complicated financial issues into useful information for small business owners, to save them time they could be using to build their companies. Her work has been featured in Forbes and on financial health platform Nav.com. When she's not writing blogs, web copy, or fiction, Kat can be found walking her dog or singing karaoke in Austin, Texas.
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