May 25, 2022
SBA Loan Down Payments: How Much Do You Need?
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
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
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