How much of a down payment is required for an SBA loan?
Small business owners who require funding have a lot of options, including SBA loans. These loans can help firms grow because of their flexible repayment plans and low interest rates.
Participating banks and lenders make SBA loans, which are partially backed by the U.S. Small Business Administration. 10% of the entire loan amount is the usual down payment for an SBA loan, but some lenders demand a higher down payment.
Depending on the type of loan, SBA loan criteria can change, and some SBA loans don’t require a down payment.
The down payment for these SBA loans is normally required:
SBA 7(a) loan for new businesses and acquisitions
Loans and lines of credit offered by the SBA
Major cost SBA 504/CDC loan
But for these SBA loans, you often don’t need to put down any money:
Quick disbursement is available with SBA Express loans.
Low-loan-amount SBA Microloans
Emergency loans from the SBA
Depending on your loan and lender, your down payment for an SBA loan may vary. Investigate the qualifications needed before beginning an application so you’ll be ready with the necessary materials.
Loan Types and SBA Loan Down Payments
SBA loans are available in a wide range of sizes, allowing you the choice of which is ideal for your company.
The necessary down payments for typical SBA loans are as follows:
10% down payment needed for SBA 7(a) loans
On 7(a) loans for new businesses and business acquisitions, the SBA stipulates that the down payment be 10%. The particular lender may demand equity for 7(a) loans utilized for other purposes if they do so for other, comparable (non-SBA) loans.
With durations ranging from five to 25 years, the SBA 7(a) loan program provides loans up to $5 million. These loans can be used for a variety of things, including as buying goods, equipment, working capital, or real estate.
An SBA 7(a) loan’s interest rate is computed by multiplying the prime rate by an extra increment, which depends on the loan’s amount and rate type (fixed or variable). The prime rate is set to reach 8.25% on July 10, 2023.
As 7(a) loans, SBA CAPLines and Express loans may also require a 10% down payment, but this will depend on the borrower and the lender. CAPLines are credit lines with 10-year repayment periods and a maximum loan limit of $5 million. They can be used to pay for a range of charges, including as administrative and overhead expenses.
The maximum amount of an express loan is $500,000, and it can be used to restructure current debt, buy real estate or equipment, or pay operating expenses. Express loans often have faster approval times than traditional SBA loans.
Loans from CDC/SBA 504
10% down payment required
Financing up to $5.5 million is available with the CDC/504 loan. These loans are made to assist business owners with financing large acquisitions, like real estate and commercial equipment. Depending on whether the loan is being used for equipment, real estate, or another item, you can repay a CDC/504 loan over a duration of 10, 20, or 25 years.
The loan structures for the 504 loans are 50/40/10. This means that entrepreneurs must contribute 10% as a down payment, 50% of the loan amount will come from a traditional lender, and the remaining 40% will come from the SBA.
Why Are Down Payments Common with SBA Loans?
In order to lower risk for the lender, certain SBA loans call for upfront down payments. Making a down payment is viewed by a lender as evidence that you are more committed to repaying the loan and may therefore be less likely to default.
A down payment can lessen your required borrowing amount and your required monthly payments for any loan. Your interest costs can be reduced over the course of the loan by taking out a smaller one.
How to Put Money Down for an SBA Loan
You invest money in your firm when you pay a down payment on an SBA loan. In the last stages of the loan closing procedure, you will provide the lender the money up front.
Some entrepreneurs might be able to fund the down payment out of pocket, perhaps by making cost reductions in their day-to-day activities or selling equipment. In other circumstances, it might come from income that was saved.
Although you are allowed to utilize borrowed cash as a down payment for an SBA loan, there are restrictions on the kinds of funds that can be used in this way. Prior to attempting to obtain a loan, weigh all of your options, plan how you’ll handle your bills, and consult with a lender to make sure your down payment will be accepted.
SBA Loans with No Deposit
A down payment is not necessary up front for certain SBA lending programs, such as:
Loans from the SBA
The SBA claims that SBA Express loans have a quick response time of up to 36 hours. The most you may borrow with an Express loan is $500,000.
Express loans are offered as both loans and lines of credit, with periods ranging from 10 years for working capital and business acquisitions to 25 years for real estate.
Loans made by SBA
A lender acting as an intermediary processes and disburses SBA Microloans. With durations up to six years and interest rates typically ranging between 8% and 13%, they provide small business owners with up to $50,000. Depending on the particular lender, your rates and terms might change.
A microloan cannot be used for real estate purchases or debt consolidation. You can, however, employ it to rehabilitate, fix, or advance your company. One to two months may pass before your microloan is processed and approved.
Disaster Loans from SBA
You might be eligible for an SBA disaster loan if a calamity has impacted your company. These loans can be used to restore homes and businesses after any insurance claims have been settled. These loans have a maximum loan amount of $2 million and up to 30 years of payback. Interest rates on loans to repair physical harm to enterprises are limited to 8%.