SBA loans typically require 10 to 20 percent down, depending on the loan program and what you're buying

The Small Business Administration does not set a single down payment requirement across all its programs. Instead, each program — 7(a), Microloan, Express, CDC/504 — has its own rules. A 7(a) loan, the most common SBA product, usually asks for 10 to 20 percent down when you're buying equipment or real estate. A 504 loan, used for real estate and equipment, often requires 10 percent down. Microloans cap out at $50,000 and typically ask for 10 to 20 percent down as well.

The lender — not the SBA — decides the exact amount within those ranges. A bank may ask for 20 percent because of your credit history or the type of business, while another lender might accept 10 percent for the same loan. Your personal credit score, the age of your business, how much revenue you're bringing in, and what you're using the money for all factor into what a lender will demand before they'll fund you.

Down payment is not the same as the SBA may provide. The SBA backs up to 90 percent of a 7(a) loan, meaning the bank takes the first loss if you default. You still have to put your own money down — the SBA may provide does not eliminate that requirement.

Key Takeaways

  • SBA 7(a) loans usually require 10 to 20 percent down, but the lender sets the exact amount based on your credit, business age, and what you're buying.
  • A 504 loan for real estate or equipment typically asks for 10 percent down, though some lenders may ask for more.
  • Microloans under $50,000 generally require 10 to 20 percent down, and many are offered by nonprofit lenders with more flexible terms than banks.
  • The SBA may provide protects the lender, not you — you still have to put your own cash down even though the government backs most of the loan.
  • If you cannot meet the down payment requirement at one lender, another SBA-approved lender may have different standards.

What counts as your down payment

Your down payment can come from your personal savings, a home equity line of credit, a retirement account withdrawal, or a personal loan from a friend or family member. The SBA does not care where the money comes from as long as it is yours — you cannot borrow it from the lender you're getting the SBA loan from, and you cannot use another SBA loan to fund it.

Some lenders will let you count equipment you already own or inventory you have on hand toward your down payment, though this is less common. Ask your lender upfront whether they accept non-cash contributions. If they do, they will want an independent appraisal to confirm the value.

Sweat equity — the value of work you do yourself — does not count as a down payment for SBA loans. The SBA wants to see actual money or assets you own.

How down payment changes by loan program

7(a) loans are the workhorse of the SBA. They go up to $5 million and can be used for almost anything a business needs: equipment, inventory, working capital, real estate, or refinancing existing debt. Most lenders ask for 10 to 20 percent down. If you're buying real estate, some lenders push toward the higher end. If you're buying equipment or inventory, 10 percent may be enough.

504 loans are structured differently. They come from a Certified Development Company, a nonprofit partner of the SBA, and are designed for real estate and equipment purchases. The typical structure is 10 percent down from you, a 504 loan covering up to 40 percent, and a conventional bank loan covering the rest. This means you might need less cash upfront than with a 7(a), but you are dealing with two lenders instead of one.

Microloans max out at $50,000 and are often made by nonprofit lenders rather than banks. Many microloans ask for 10 to 20 percent down, but some nonprofit lenders are more flexible, especially if you are in an underserved area or a disadvantaged group. The tradeoff is that interest rates are often higher than on a 7(a) loan.

Express loans are fast-tracked 7(a) loans capped at $350,000. They move quickly — sometimes in days — but lenders often ask for 20 percent down because the SBA may provide is lower (50 percent instead of 90 percent).

Why lenders ask for more or less down payment

A lender uses down payment as a cushion. If your business fails and you default, the lender loses money. The more you have at stake, the less risk the lender bears. A lender asking for 20 percent down is saying: "We want you to have skin in the game."

Lenders also look at what you're buying. Equipment loses value fast — a used truck is worth less next year than this year. Real estate usually holds value better. So a lender might ask for 10 percent down on a building but 20 percent on a fleet of vehicles.

Your credit score and business history matter too. If you have been in business for five years with steady revenue and a credit score above 700, a lender may accept 10 percent. If you are brand new with a credit score of 600, they may ask for 25 percent or turn you down entirely.

The strength of your business plan and cash flow projections also factor in. A detailed plan showing how you will use the money and repay the loan can convince a lender to accept a lower down payment.

What happens if you cannot afford the down payment

If one lender asks for 20 percent and you can only put down 10 percent, shop around. Different SBA-approved lenders have different appetites for risk. A community bank or credit union may be more flexible than a large national bank. A nonprofit lender offering microloans may work with you on terms a traditional bank would not.

You can also ask the lender whether they will accept a personal may provide from a co-owner or spouse as a substitute for a higher down payment. This does not reduce the cash you need to put down, but it may give the lender more confidence in your ability to repay.

Another option is to delay the loan and save more. If you need the money now, this is not practical. But if you can wait six months or a year, building up your down payment and your business track record will make you a stronger candidate and may open doors with lenders who would otherwise decline you.

Do not take on high-interest debt just to meet a down payment requirement. A personal loan at 18 percent interest or a credit card cash advance will cost you more in the long run than waiting or finding a more flexible lender.

How down payment affects your loan terms

A larger down payment usually means a lower interest rate and better terms. If you put down 20 percent instead of 10 percent, the lender's risk drops, and they may offer a rate that is 0.5 to 1 percent lower. Over a five- or ten-year loan, that adds up.

Down payment also affects how much you borrow. If you need $100,000 total and put down $10,000, you borrow $90,000. If you put down $20,000, you borrow $80,000. Lower borrowing means lower monthly payments and less interest paid over the life of the loan.

Some lenders tie down payment to the loan term. A larger down payment may let you stretch the repayment period, lowering your monthly payment even further. Ask your lender whether this is an option.

Frequently Asked Questions

Can I use a gift from family to cover my down payment?

Yes. The SBA allows gift funds as long as they are truly a gift — not a loan you have to repay. The lender will ask for a gift letter from the person giving you the money, stating that it is a gift and not a loan. Keep that letter with your loan documents.

What if I use my 401(k) to fund the down payment?

You can withdraw from a 401(k), but you will owe income tax on the withdrawal and possibly a 10 percent early withdrawal penalty if you are under 59½. Some plans allow loans against your balance instead, which avoids the tax hit. Talk to your plan administrator and a tax professional before you decide.

Do I have to put down 10 percent, or is that a minimum?

Ten percent is typical, not a legal minimum. Some lenders may ask for less if you have strong credit and a solid business plan. Others may ask for more. The SBA does not set a floor — the lender does.

Can the SBA loan itself cover the down payment?

No. The SBA explicitly prohibits using loan proceeds to fund your own down payment. The down payment has to come from your own resources or a gift.

What if I am buying a business instead of starting one?

Down payment requirements are usually the same — 10 to 20 percent — but lenders may ask for more documentation. You will need to show the seller's financial records, tax returns, and a valuation of the business. Some lenders are stricter about business purchases than startups because the business's past performance is easier to verify.