Do I Need a Down Payment for a Business Loan?

A down payment for a business loan is not always necessary, but it may be a good idea if you have the capital.
Jun 30, 2022

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The amount required for a down payment for a business loan will vary depending on the type of loan and how much you need, along with your credit history. It is different for various business loan types and isn't always required for the most popular loan types.

How much down payment is needed for a business loan?

Type of Loan

Required Down Payment

SBA 7(a) Loan

10%

CDC/SBA 504 Loan

10%-20%

SBA Microloan

None

SBA CAPLines Program

None

SBA Export Loans

None

SBA Disaster Loans

None

USDA Business & Industry Loan

20%-25%

Traditional Bank Loan

20%-30%

Online Loan

10%-30%

Construction Loan

20%-30%

Conduit/CMBS Loan

25%-30%

HUD FHA Multifamily Loan

10%-16.7% depending on purpose

HUD FHA Healthcare Property Loan

10% depending on purpose

Fannie Mae Apartment Loan

20%-30%

Fannie Mac Apartment Loan

20%-30%

Bridge Loan

10%-20%

Commercial Equipment Financing

0%-20%

Business Loan Down Payments 101

Each type of business loan has unique requirements for if and how much of a down payment is required.

To make better sense of exactly how business loan down payments work and whether they’ll be a factor in your financing journey, let’s explore the different types of loans available and how much down payment is required — if any.

The most common types of business loans

These include:

  • SBA loans.

  • Commercial real estate loans.

  • Commercial equipment financing.

  • Business lines of credit.

  • Invoice financing.

  • Term loans and short-term loans.

How Much Do You Need?

with Fundera by NerdWallet

What determines how much down payment is required

Some business loans require a set down payment, meaning it’s a predetermined percentage of the total amount of loaned funds. For other loan types, the down payment amount fluctuates depending on a few factors:

  • Type of loan.

  • Amount of money loaned.

  • Purpose of the loan (how the funds will be used).

  • Financial profile of the borrower (this can include the business owner’s personal financial history as well as that of the business).

All of these factors are evaluated by the lender during the loan application process. The stronger your borrowing and financial history, the lower your interest rates will be and the lower the required down payment will be. For borrowers with poor credit history, the penalty might be a higher down payment.

Do you need a down payment for an SBA loan?

The SBA pairs with traditional banks to offer small business owners low-interest, long-term loans. There are few loans that can beat the value of an SBA loan. This means that the eligibility requirements to be approved for an SBA loan are among the most stringent, making it difficult for most businesses to get approved.

The two most common SBA loan programs are the SBA 7(a) loan and the CDC/SBA 504 loan. Both of these types of SBA loans require a down payment.

On the other hand, there are SBA loans that don’t require down payments:

  • SBA microloan

  • SBA CAPLines program

  • SBA export loans

  • SBA disaster loans

Most of these SBA loan options are for specific types of applications and business owners. These SBA loans will have a lot of restrictions so you should investigate whether you’re eligible for any of these loans before completely diving into an in-depth application. Consider starting your research with the SBA 7(a) and SBA CDC/504 loans.

Do you need a down payment for a commercial real estate loan?

One of the most common reasons businesses seek a loan is to purchase commercial real estate. Most commercial real estate loans require a down payment. For many businesses, commercial real estate is one of the biggest purchases they’ll ever make. Saving up the cash to have a down payment for a commercial real estate loan takes time and planning but is necessary if you want one of these loans.

Do you need a down payment for equipment financing?

Equipment financing enables your business to purchase the equipment it needs right away and pay it off over time. One of the benefits of commercial equipment financing is that the lender considers the purchased equipment collateral. This means that you, as the borrower, might not have to put down any money or additional collateral to receive approval for the loan.

Whether or not a down payment is required for equipment financing depends on the amount of the loan, the equipment being purchased and your financial history. Some equipment financing loans require no down payment, so you can receive 100% financing for your equipment.

If the borrower defaults on payments, the lender can collect the collateral (the equipment purchased with the loaned funds) as repayment for the loan. Collateral is the lender's protection that they won’t lose money on the loan.

Other times, a borrower can only receive 80% financing for the loan. This leaves up to 20% of the cost to be paid by the borrower in the form of a down payment.

Do you need a down payment for a business line of credit?

A business line of credit doesn’t require a down payment and you only pay interest on the funds that are used. A business line of credit sometimes requires collateral but is also a great way to build up a strong financial history and credit score.

Do you need a down payment for invoice financing?

A down payment is not required for invoice financing because the financed invoices act as collateral for the loan. Also, most invoice financing lenders don’t loan 100% of the invoice total, but closer to 85%. Some lenders offer 100% financing, but that’s pretty rare.

Do you need a down payment for a business term loan?

Term loans and short-term loans don’t require a down payment. The caveat here is that you’re only approved for what the lender thinks you can afford. So if you want to make a $100,000 purchase, but the lender thinks you can only repay $80,000, that’s what they’ll loan you.

So even though term loans and short-term loans don’t require a down payment, it doesn’t mean you’ll be approved for the full amount that you need. That’s up to the lender, who evaluates your profile and qualifications when you submit your app. The business still might need to contribute toward the desired purchase.

How much down payment should I make for a business loan?

Just because a down payment isn’t required, doesn’t mean you shouldn’t put some money down if it’s available or you have cash set aside and saved up to help with prepayment. Taking out a loan is a big step for any business, and there are major consequences for not being able to repay the loan. It’s important to take time to research all of the available loan options and study your business’s finances to make sure you fully understand just how much of a loan you can afford.

Many businesses have bitten off more than they can chew when it comes to loans, and they have been forced into default because of it. Before committing to a loan product, make sure it’s within your budget.

This article originally appeared on Fundera, a subsidiary of NerdWallet.