There are plenty of business loans with no down payment requirements. But certain types\u2014such as CSBFP loans, equipment financing and commercial real estate loans\u2014often require an equity injection from the borrower to qualify.<\/p>
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\u2019ll be approved for the loan. Basically, a borrower with a financial stake in a loan is more likely to repay it.<\/p>
For example, a commercial real estate lender may agree to finance 80% of a $1 million property you want to purchase. That means you would be responsible for putting up $200,000.<\/p>
The exact percentage required is calculated based on factors like 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 cheque, bank draft or wire transfer.<\/p>
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, new businesses or borrowers with low credit scores.<\/p>
Down payment requirements vary based on the lender, the purpose of the loan, the loan amount and borrower qualifications. Here\u2019s an idea of what a down payment might cost you by loan type.<\/p>