How Much Down Payment Is Required for a Business Loan?

How Much Down Payment Is Required for a Business Loan?

Compare Small Business Loans

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Down payments for business loans vary depending on the type of loan, purpose and borrower profile. For example, you might have to put down 10% for a commercial real estate loan through the Small Business Administration, but no down payment at all for a commercial auto loan.

Down payments for a commercial business loan can dramatically raise upfront costs, depending on the loan type. To help evaluate the options available to your business, we’ve compiled a list of small business loans and required down payment terms.

Commercial mortgage down payment requirements

The cost of purchasing real estate is often one of the largest expenses any business will ever incur. Getting financing for a commercial property is possible in several ways. Here are some of the typical commercial mortgage programs and the down payment amounts they require:

Loan Type
Down Payment
SBA 504 loan10% to 20%
SBA 7(a) loan10% to 20%
USDA Business & Industry Loan20% to 40%
Traditional bank loanAt least 20%
Long-term online loanCollateral may be required to secure the loan
Construction loan25% to 34%
Conduit/CMBS loanAt least 25%
HUD FHA Multifamily LoanAt least 16.7%
HUD FHA Healthcare Property LoanAt least 10% for nonprofit, 15% for for-profit
Fannie Mae Apartment LoanAt least 3.5% if resident for at least 12 months, 20% if not
Freddie Mac Apartment LoanAt least 3.5% if resident for at least 12 months, 20% if not
Bridge loan10% to 20%

Due to the size of the purchase, most lenders will require a significant amount of upfront payment. But when it comes to selecting a mortgage for your business, the size of the initial down payment isn’t the only factor to consider. Shop around to obtain the best rates and terms for your business, as the conditions offered can vary by lender.

On average, commercial mortgages offered through government-sponsored programs, including the SBA, FHA and USDA, will provide some of the best financing options. If the purchased property serves a good governmental purpose — a healthcare facility or public housing, for example — your chances of low rates are even better. While the qualifications listed above are based on the typical loan-to-value ratios required for each program, acceptance standards may vary by lender.

Down payments for commercial auto loans & truck financing

Commercial auto loans are especially popular among businesses that deliver goods, transport customers and make house calls. There are several lenders that specialize in providing business auto loans and fleet financing. Here are some common types of commercial vehicle loans, as well as the contingent down payments for each:

Loan Type
Down Payment
Commercial auto loan0% or more, dependent on buyer profile
Commercial truck loan10% to 50%, dependent on buyer profile

In some cases, lenders are willing to finance a new vehicle with no down payment because the vehicle serves as collateral for the loan. The terms may vary for used vehicles or fleet purchases.

Down payments for general purpose loans & alternative financing

These loans come in many varieties and can include traditional term loans, lines of credit or government-sponsored lending programs. They're more flexible than business auto loans and commercial mortgages because they can be applied to various purposes. Here are some common business loans and required down payments that we’ve identified.

Loan Type
Down Payment
Unsecured business loanNo down payment, high interest rates
Secured business loanNo down payment, requires collateral
Equipment financing0% to 20% of equipment value
Inventory financingTypically no down payment, as inventory will serve as collateral
Secured business line of creditNo down payment, requires collateral
Unsecured business line of creditNo collateral required, higher interest rates

The down payment requirements can vary based on the need for underlying collateral, use of proceeds or profile of the borrower. There are many lenders offering these in a range of loan structures, so borrowers should explore every option before settling on a lender.

How much down payment should I put down?

Just because a lender allows you to put very little or no money down on a business loan down payment, doesn’t mean that you should. The less money down you offer, the higher your interest charges will be over the life of the loan, especially for big-ticket purchases like mortgages and commercial auto loans.

On average, lenders offer lower interest rates on business loans with higher down payments, further incentivizing a borrower to pay more up front. If your business can afford to make a greater contribution to the down payment, it can reduce the overall interest costs of the loan.

Down payment assistance

Cash flow problems may make it difficult for a business to make a down payment on a loan. Here are some options that may lower the down payment hurdle for entities without the short-term cash to spare:

  • Obtain government assistance: SBA loans and loans sponsored by government entities can help businesses in a bind: They require lower down payments than private business loans and offer competitive interest rates for borrowers who don't meet the requirements for a conventional business loan.
  • Pay off business credit cards and cut interest expenses: Cutting expenses on existing borrowing will help to improve your borrower profile. Allowing a balance to accumulate on your credit cards will increase your interest expense, depleting your cash flow over time. By reducing or eliminating these expenses, you free up cash to contribute towards a down payment over time.
  • Contribute to savings and investments: When planning for long-term improvements, it’s helpful to set aside excess cash over time. While the dollars you save may not be enough to fund a large purchase, they go a long way towards meeting the down payment requirements for a planned upgrade. Additionally, you may be able to maximize the yield on those savings by investing them in conservative short-term investments, such as FDIC-insured savings accounts, money market funds or certificates of deposit that mature at the same time as your purchase. Stocks, mutual funds and other traditionally long-term investments are not appropriate for this strategy due to the risk of loss.