There are plenty of business loans with no down payment requirements, but certain types — such as SBA loans, equipment financing and commercial real estate loans — often require an equity injection from the borrower to qualify.
A down payment, also known as an equity injection, is a percentage of the loan amount that some business lenders require up front to approve certain types of loans. Down payments reduce the risk for lenders, which increases the chance you’ll be approved for the loan. Basically, a borrower with a financial stake in the loan is more likely to repay it.
For example, a commercial real estate lender may agree to finance 90% of a $1 million property you want to purchase. That means you would be responsible for putting up $100,000.
The exact percentage required is calculated based on factors such as the purpose of the loan, the amount and your creditworthiness. If you can afford more than the minimum down payment required, you may qualify for a better interest rate. Typically, down payments are made at closing using a certified check, cashier’s check or wire transfer.
Not every business loan requires a down payment. Down payments are most often required if you are buying large fixed assets such as real estate or heavy equipment. Down payments may also be required for startups, newer businesses or borrowers with lower credit scores.
Down payment requirements vary based on the lender, the loan’s purpose, the loan amount and borrower qualifications. Here’s an idea of what a down payment may cost you by loan type.
| Loan type | Loan amounts | Down payment cost |
|---|---|---|
| SBA loans | $500 – $5.5M | 10% – 30% |
| Commercial real estate loans | $25K – $5M+ | 10% – 30% |
| Equipment loans | $25K – $5M+ | 0% – 20% |
| Business lines of credit | $5K – $250K+ | None |
| Business term loans | $5K – $2M | 0% – 20% |
| Microloans | $500 – $50K | None |
| Online business loans | $5K – $5M | Varies |
| Invoice factoring | 80% – 95% of unpaid invoices | None |
| Invoice financing | 80% – 90 of unpaid invoices | None |
| Merchant cash advance | Up to $1M | None |
Only specific types of business loans usually require a down payment.
Some SBA loans that fall under the 7(a) and 504 loan programs require a down payment of at least 10% but could be as high as 30%, depending on the lender and other considerations. For example, 504 loans always require at least 10% down, but startups or some special-purpose properties may call for a larger contribution from the borrower.
Common loan purposes that fall under these categories include working capital, inventory, real estate and equipment, but they could include loans for almost any business need. In determining the exact percentage, lenders consider time in business, creditworthiness, loan amount and purpose.
Real estate loans generally require a minimum equity injection of 10% to qualify for the loan, but some lenders may require more than that. They’re similar to residential mortgages in that borrowers must invest a percentage of the purchase price to qualify for the loan. A higher-than-required down payment can result in more favorable loan terms.
An appraisal of the property also plays a role in determining the down payment, along with the financial health of the business and the owners’ credit history.
Equipment loans fall into two categories: loans used to purchase equipment and loans used to temporarily lease equipment or machinery. Either way, equipment financing often requires a down payment of 5% or more, but that is not a hard and fast rule. Some businesses, particularly online lenders, may not charge a down payment at all. Still, others may accept collateral instead of a down payment.
Term loans for business purposes, like equipment financing, don’t always require a down payment, but you may have to put down up to 20% to qualify for the loan. The amount of the down payment depends on the lender, the loan purpose, the loan amount and other factors.
Online business lenders and Community Development Financial Institutions (CDFIs) are typically less likely to require down payments. You might also get a term loan from a bank if you put up collateral or sign a personal guarantee.
Compare these business loans at varying interest rates and loan terms.
There are a number of factors that lenders consider when determining if you need to make a down payment and for how much.
If you don’t have the cash to make a down payment, consider these options to boost your chances of loan approval without making a down payment.
As mentioned, not all business loans have down payment requirements, so it’s worth looking into some alternatives that might fit your needs.
There is a business loan to suit almost any business need, and some require down payments from about 5% to 30%. Lenders that offer real estate loans, equipment financing, term loans and certain SBA loans are most likely to require down payments. However, the percentage depends on your business and personal credit, the loan amount, the loan purpose and other factors.
For business owners who can’t afford a hefty down payment, you may be able to offer collateral or a personal guarantee instead. Also, many other forms of business funding don’t require an equity injection at all.
Invoice financing can help your business meet immediate cash flow needs based on your unpaid invoices.
Startups and newer businesses could qualify for up to $150,000 in financing.
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