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May 25, 2022

SBA Loan Down Payments: How Much Do You Need?

Author

FF

Fora Financial

Staff

Tags

  • Business Finances

  • Small Business Loans

As with many other types of loans, SBA loans often have a down payment requirement. The only two SBA loans that don’t require down payments are CAPLines and Disaster loans. All the other SBA loan programs require a 10 to 50 percent down payment. If you’re considering an SBA loan, it’s wise to understand what your down payment could be before applying. In this post, we’ll first review what an SBA loan down payment is. Then, we’ll explain what you need to know about the down payment requirements of each SBA loan.

What is an SBA Loan Down Payment?

An SBA loan down payment is the upfront money you pay to an SBA lender as a condition of your business loan approval. SBA loan down payments are like any other except that lenders generally require lower down payments on SBA loans compared to other similar, non-SBA loans. As you may know, there are many different types of SBA loan programs, including:
  • 504 loans
  • 7(a) loans
  • Microloans
Each of these SBA loan programs has other purposes and down payment requirements, as shown below:

SBA 504 Loans

SBA 504 loans help entrepreneurs purchase or renovate commercial real estate or equipment to grow their business. Therefore, 504 loan down payments are based on your equipment or real estate price.

Do you need a down payment for an SBA loan in the 7(a) program?

SBA 504 loans require a down payment, but they tend to have one of the lowest down payment requirements at a minimum of 10 percent. In some cases, it’s possible to pay even less than 10 percent down if you line up a local government willing to contribute financing. Yet even at ten percent down, on a million-dollar project, that would mean about $100,000 in upfront cash savings compared to traditional loans. Most traditional lenders require 20 to 30 percent of the purchase price as a down payment. Just keep in mind that, in some cases, 504 loan down payments may exceed 10 percent. It will depend on the overall strength of your small business loan application. Most likely, you'll have a lower business loan down payment requirement if your financials and business plan are sound.

SBA 7(a) Loan Program

The SBA 7(a) loan program is the SBA’s flagship program. This type of business financing can be used for various business expenses:
  • Working capital
  • Inventory
  • Business startup financing
  • Real estate purchases
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Do you need a down payment for an SBA loan in the 7(a) program?

SBA 7(a) down payment requirements are generally more strict compared to 504 loans but also range from 10 to 30 percent. With an SBA 7(a) loan, the SBA guarantees between 10 and 30 percent of the loan amount; that guarantee allows SBA lenders to offer specific borrowers lower down payment requirements. However, there are multiple types of 7(a) loans, and they have various down payment requirements. Here’s a list of the 7(a) loans and their minimum down payment requirements:
  • Standard 7(a) and 7(a) Small Loans: 15 percent for loans up to $150,000 and 25 percent for loans greater than $150,000.
  • SBA Express: 50 percent for loans up to $500,000
  • Export Express: 10 percent for loans up to $350,000 and 25 percent for loans over $350,000.
  • Export Working Capital and International Trade: 10 percent for loans up to $500,000.

Microloans

As the name suggests, the microloan program provides small loans of up to $50,000. Borrowers can use their microloan funds for the following expenses:
  • Working capital
  • Machinery
  • Furniture
  • Inventory
  • Other approved expenses
If you'd like to research SBA microloans, you can use this page to find a microlender near you. Learn more about the SBA Microloan program.

Do you need a down payment for an SBA loan in the Microloan program?

You need a down payment in order to secure SBA microloans. Since down payment requirements are 20 to 30 percent, and working capital loan amounts average $10,000, microloan borrowers usually need to put $2000 to $3000 down.

Conclusion: Tighten Your Budget for SBA Loan Down Payments

Unless you’re applying for a CAPLine or Disaster loan from the SBA, you can expect to pay a down payment on SBA loans. If you’re not prepared to make an SBA down payment, you’re most likely not ready to apply for an SBA loan. Therefore, if you’re considering an SBA loan with a down payment, start preparing your finances now. Consistently setting aside excess cash each month will help you raise the money to pay for an SBA loan down payment. Check out these budgeting tips if you need help tightening up your budget to allow for savings. Although it can be challenging to manage cash flow, saving money to afford a down payment will benefit your business in the long run. Remember, SBA loans are typically only available to business owners that can't secure traditional funding. Therefore, you should pursue other funding options before turning to the SBA.