SBA Loan Down Payment: How Much Is Required?

The Small Business Administration (SBA) requires a down payment for its popular loan programs. Business owners should expect to pay an SBA loan down payment of 10% to 30% —  the actual amount can vary by the loan type and the borrower’s qualifications. Some SBA loan programs require no down payment at all.

Learn more about how SBA loan down payments and how they work for different loan programs.

SBA loan down payment by loan type

The SBA loan offers loan programs for general business expenses or specific purchases, such as machinery and equipment. The SBA is not a lender — instead, SBA loans are issued through partner lenders, like banks and credit unions. The down payment requirements are typically based on the company’s cash flow and the value of collateral.

SBA 7(a) loan down payment

The down payment requirement on the SBA 7(a) loan can range from 10% to 30%. The 7(a) loan program is considered the SBA’s flagship loan product and is ideal for general financing. With generous amounts ranging up to $5 million, business owners can use the proceeds for inventory, working capital, machinery and purchasing real estate.

The maximum interest rate on a 7(a) loan is prime + 8% for fixed rates or prime + 6.5% for variable rates. (As of August 21, 2023, the prime rate is 8.50%.) Repayment terms can range from five to 25 years depending on how the funds are used. Repayment terms on working capital loans, for instance, must be repaid within seven years, while business owners may have up to 25 years to repay a loan used for financing real estate.

The SBA uses the FICO Small Business Scoring Service (SBSS) when evaluating 7(a) loan applicants. The minimum SBSS score is 155 for loans up to $350,000, as of Aug. 12, 2021. The score is based on multiple factors, including credit score and financial information.

SBA 504/CDC loan down payment

Business owners should expect the SBA 504 down payment amount to range from 10% to 30% — startups are likely to be subject to the higher end of that range. The 504/CDC loan offers amounts up to $5.5 million, used specifically to finance major fixed assets, such as commercial equipment, and purchasing real estate. Repayment terms are up to 10 years for equipment purchases or 25 years for real estate financing.

Alongside your 10% down payment, 40% of the loan amount is funded by a Certified Development Company (CDC) and 50% from a third-party lender. Interest rates on the third-party lender portion can be fixed or variable and are negotiable. The CDC portion’s interest rates are pegged to five- and 10-year Treasury notes.

504 loans have job creation requirements — business owners must create or retain a job per $75,000 borrowed (or $120,000 for small manufacturers). Your business’s cash flow will be a significant factor during the underwriting process.

Microloans

As the name suggests, SBA microloans offer small loan amounts — up to $50,000. Similar to the 7(a) loan, microloans can be used for general financing, including working capital, inventory, furniture and equipment. The maximum term is eight years (or seven years, starting in the fiscal year 2022). Interest rates are negotiable between the business owner and intermediary and typically range from 8% to 13%.

The SBA microloan program primarily serves business owners from underserved markets, including women and minority entrepreneurs. Some SBA microlending institutions do not enforce a minimum credit score, which can make this loan program ideal for business owners with little to no credit history. Business owners should have a strong business plan with cash flow projections over the next 12 months before applying.

How to get a down payment for an SBA loan

Lenders typically require business loan down payments because they want the business owner to have “skin in the game.” If you have enough cash reserves, you can rely on your personal savings to cover the down payment. After calculating your down payment, however, you may discover that the amount exceeds your budget.

In some cases, asking an investor to cover the down payment can work. Angel investors are typically high-net-worth individuals who help finance startups. Instead of fronting the full loan amount, you can negotiate for the angel investor to cover only the down payment. In return, some angel investors may negotiate to own a percentage of your company.

If your business is already in operation, look for ways to cut costs. Working with independent contractors, for example, can be a less costly alternative to a full-time employee plus salary and benefits. Scaling back on variable costs, such as using Zoom to save on time and travel and transportation costs. You can also add to your down payment savings by selling off personal items with a good resale value that you no longer need, such as a car or fitness equipment.

Using your 401(k) savings or Rollover as Business Startup plan

Business owners can turn to their retirement savings plan to cover a loan down payment. A rollover as a business startup (ROBS) plan allows you to invest the funds in your retirement account, such as your 401(k) or traditional individual retirement account (IRA). Under a ROBS plan, you are not withdrawing from your retirement funds — instead, the funds are rolled into another account, which buys shares into your corporation. For this reason, a ROBS plan is available only to C corporations since this business structure enables a company to sell stock.

While a ROBS can provide access to the funds needed for a down payment, there are some drawbacks worth noting. Depending on the down payment amount, you could be investing a significant portion of your retirement savings. If your business fails, you would be risking your future retirement security. Also, be conscious of the various fees that come with setting up, administering and maintaining your ROBS.

SBA loans with no down payment

The following SBA loan programs do not have any down payment requirements. But, while this can be ideal for business owners that lack financial resources, lenders may place more weight on a sound business plan and strong financial statements.

CAPLines

CAPLines are multiple government lines of credit available in amounts up to $5 million. Lines of credit are useful because the funds are revolving — they can be drawn on an as-need basis and amounts are available for re-borrowing after being repaid. Terms can range up to five to 10 years, depending on the CAPLine. Maximum interest rates can be fixed or variable, and follow the same rate schedule as 7(a) loans.

There are four types of CAPLines available — working capital, contract, seasonal and builders. Each line of credit can be useful for certain situations. The contract CAPLine, for instance, can be used for contract-related expenses, while the builders CAPLine is ideal for construction companies.

Disaster loans

The SBA extends financing to small businesses affected by declared disasters through disaster loans. Business owners within declared disaster areas may qualify for the SBA Economic Injury Disaster (EIDL) loan if their businesses have suffered a significant economic injury. Declared disasters areas can be affected by natural disasters, such as hurricanes and wildfires. EIDLs offer generous amounts at low interest rates — up to $2 million at rates up to 4%. Repayment terms extend up to 30 years. Eligible expenses include working capital, rent, and health care benefits.

Businesses in declared disaster areas can apply for a physical damage loan if their business suffered physical damages. Amounts up to $2 million can be used to repair or replace damaged property. The SBA enforces a maximum interest rate of 8% with lengthy repayment terms of up to 30 years. Some business owners may qualify for mitigation assistance financing on disaster-prevention projects — installing hurricane roof straps or storm shelters, for instance.

Business owners with low credit scores (high 500s and up) can qualify for certain disaster loans.