Do you need a down payment for a business loan?

A down payment is the upfront money you need to provide to borrow a small business loan. Down payments reduce the risk for a lender and give them confidence that your business can afford the loan. Increasing your down payment beyond the minimum requirement may also increase your chance of being approved if your business is new or you have a lower personal credit score.

The amount your business needs to put down to borrow depends on the lender, the type of loan you need and your business’s overall finances. While you can expect some loans from the Small Business Administration (SBA) to have a minimum down payment, other loans from banks and online lenders may not require any down payment.

Types of business loans that require down payments

What determines if a loan has a down payment?

While many down payments are a predetermined percentage of your small business loan amount set by a lender, others may be more flexible. Your down payment is typically based on the lender’s risk assessment of your business. The amount you borrow, your business and personal credit, any collateral you provide and the type of loan are a handful of factors that influence your down payment.

Amount of money

The amount you borrow will also affect your down payment. A smaller loan may be viewed as less risky for your lender, which could result in a lower down payment. But the amount you are eligible for will vary based on other factors like your credit score and business finances, which will also affect the size of your down payment.

Purpose

All business loans need to be used to grow your business. But a lender may view some purposes as more likely to increase your revenue or cash flow. In this case, it may accept a lower down payment. This is on a case-by-case basis, so check with the lenders you are interested in to see if they would be willing to negotiate on a down payment.

Creditworthiness

Lenders will use your personal and business credit scores to determine your creditworthiness. The higher each score, the more likely you are to score a lower down payment — and other benefits like more competitive rates. Since you and your business will be viewed as less risk for the lender, you may even be able to find a loan that does not require a down payment.

Type of loan

The type of business loan can influence your down payment. Commercial real estate loans tend to have the highest down payment requirement. Term loans offered by banks may require down payments, and SBA 7(a) and 504 loans may also require hefty down payments of 10 to 30 percent. And while not every lender requires a down payment for term loans, you are less likely to see a down payment on lines of credit and short-term business loans.

Collateral

Securing a loan with a high-value asset as collateral can act as a substitute for a down payment or allow you to negotiate a lower down payment in some cases. This is because the collateral signals to the lender that you are less risky, similar to having a high credit score. In some instances, offering collateral doesn’t eliminate the down payment requirement.  For example, semi-truck financing often requires a down payment even though the lender will maintain a lien on the vehicle until the loan is satisfied.

Lender’s requirements

In the case of SBA 7(a) or SBA 504 loans, a down payment of at least 10 percent is required. So, while you may not need to provide the maximum down payment, you will need to budget for a down payment regardless of how much you borrow. Other lenders may have a similar policy, so it is important to compare offers to find lenders that require smaller down payments and have competitive rates.

Alternatives to a down payment business loan

Not every business loan requires a down payment. There are some SBA loans — as well as other types of financing — that can fund your business without upfront costs.

Be sure to pay attention to other bank fees associated with the loan; just because a loan doesn’t require a down payment doesn’t mean it doesn’t have an origination fee or other expenses. 

• SBA microloans. Although SBA microloans have similar eligibility criteria to other SBA loans, they do not require a down payment. But the amount you can borrow is capped at $50,000.
• SBA Export loans. If you export products, SBA Export loans may be more accessible than other financing. The SBA provides a 90 percent guarantee on Export loans and does not require a down payment.
• SBA CAPLines. In addition to loans, the SBA offers a few lines of credit. Like the 7(a) program, you are eligible for up to $5 million but do not have to provide a down payment.
• Business lines of credit. Because of the flexible nature of business lines of credit, many do not require a down payment to open an account or make draws.
• Term loans. Not every term loan has a down payment requirement, and they are especially rare if you are working with an alternative or online lender instead of a large national bank. But you may still need to provide collateral and sign a personal guarantee.
• Short-term loans. Short-term business loans may be good options for subprime borrowers if you are prepared for a higher overall cost. Down payments are uncommon, and most are open to newer businesses or owners who don’t have a good personal credit score.
• Business credit cards. Similar to personal credit cards, there is no down payment requirement to use most business credit cards. You may be able to earn rewards that benefit your business.

These alternatives may not require a down payment, but that doesn’t mean they will cost your business less. You should always calculate the cost of a business loan to determine if your business will be able to afford the financing you are applying for.

The bottom line

While not every lender requires a down payment, they are far from uncommon when you need a business loan. Some SBA loans, banks and even online lenders may require a down payment of 10 to 30 percent. Research lenders and ensure your business can meet a down payment in addition to monthly payments.

Frequently asked questions

• What is the typical down payment on a small business loan?

  A down payment for an SBA 7(a) or 504 loan ranges from 10 percent to 20 percent. For loans from banks, credit unions and alternative lenders, you may see down payment requirements that range from 10 percent to 30 percent — and some lenders that don’t require any down payment.

• Do all SBA loans require down payments?

  No. SBA microloans and SBA Export loans do not have a down payment requirement.

• Is it hard to get a business loan with no money?

  Getting a business loan can be more difficult if you don’t have a down payment saved up. However, not every loan option requires a down payment. Find financing from a lender with no down payment requirement if your business cannot cover a lump sum of cash upfront.