SBA rules · SOP 50 10 8.1
How much down payment does an SBA loan need?
SBA 7(a) loans require a minimum 10% equity injection only for start-ups and changes of ownership, while 504 loans require a minimum 10% to 20% borrower contribution depending on business age and property type.
Quoted from SBA SOP 50 10 8.1Every quote checked word for word
In detail
- 7(a) Start-up businesses: All 7(a) loans made to a start-up business (defined as operating for 1 year or less) require a minimum equity injection of at least 10% of total project costs.
- 7(a) Changes of ownership: Initial acquisitions require a minimum 10% equity injection based on total project costs that cannot be reduced or eliminated, whereas business expansions and owner buyouts require 10% but permit the lender to reduce or eliminate the requirement if the borrower has sufficient liquidity and working capital.
- 7(a) Existing businesses and other programs: For existing operating businesses not undergoing a change of ownership, SBA sets no universal minimum percentage and requires the lender or SBA to determine whether equity is sufficient; 7(a) MARC loans have no minimum equity injection based on use of proceeds, and SBA Express leaves equity injection requirements to the lender's standard commercial policies.
- 504 Standard projects and new businesses: All 504 borrowers must contribute at least 10% of eligible project costs, which increases to at least 15% for new businesses in operation for 2 years or less.
- 504 Limited or special purpose properties: A 504 project involving a limited or special purpose property requires a contribution of at least 15%, increasing to at least 20% if the project involves both a new business and a limited or special purpose property.
The source
What the SOP says
“All 7(a) loans made to a Start-Up Business require a 10% equity injection based on the project cost; however, loans approved more than 90 days apart from each other are considered to be separate projects.
“For Initial Acquisitions, the required equity injection cannot be reduced or eliminated.
“For both Business Expansions and Owner Buyouts, the Lender may reduce or eliminate this requirement if they have determined that the Borrower has sufficient liquidity and working capital to sustain operations following the transaction.
“Unlike Standard 7(a) and 7(a) Small loans, 7(a) MARC loans do not have a minimum required equity injection based on use of proceeds.
“For SBA Express loans, the credit decision, including how much to factor in a past bankruptcy or whether to require an equity injection, is left to the business judgment of the Lender.
“All Borrowers must contribute at least 10%, which may be borrowed as long as it is subordinate to the Third Party Loan and the 504 debenture;
“New businesses must contribute at least 15%.
“If a Project will finance both a New Business and a Limited or Special Purpose Property, the Applicant must contribute at least 20% of the Project cost.
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This page quotes the SBA's Standard Operating Procedure 50 10 8.1. Lenders can ask for more than the SBA minimum. It is general information, not a loan approval or legal advice.