How Much Down Payment is Required for a Business Loan?

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Required down payments vary for business loans depending on the type of loan, purpose, and borrower profile for which they’re paid. Commercial Real Estate Loans issued through the Small Business Administration may require a 10% minimum down payment while a commercial auto loan may not require a down payment. The upfront costs for a commercial business loan can be dramatically increased by its down payment hurdle, depending on the loan. To help evaluate the options available to your business, we’ve compiled a list of small business loans and their required down payment terms.

Commercial Mortgage Down Payment Requirements

Purchasing real estate is one of the largest expenses that many businesses will ever incur. There are several options available when financing a commercial property. To aid your decision, the table below outlines the down payment amounts required for some typical commercial mortgage programs:

Loan TypeDown Payment
SBA 504 Loan10% - 20%
SBA 7(a) Loan10% - 20%
USDA Business & Industry Loan20% - 25%
Traditional Bank Loan20% - 30%
Online Loan10% - 30%
Construction Loan20% - 30%
Conduit/CMBS Loan25% - 30%
HUD FHA Multifamily Loan10% - 16.7% dependent on purpose
HUD FHA Healthcare Property Loan10% dependent on purpose
Fannie Mae Apartment Loan20% - 30%
Freddie Mac Apartment Loan20% - 30%
Bridge Loan10% - 20%

Due to the size of the purchase, most lenders will require a significant amount of payment up front to protect their interests. When selecting a mortgage for your business, the size of the initial down payment is not 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 the most lenient financing options, particularly if the purchased property serves a good governmental purpose—e.g. healthcare facility or public housing. 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 essential for businesses that need to make deliveries, transport customers or make house calls. There are several lenders who specialize in providing business auto loans and fleet financing. Here are some of the common commercial auto and truck loans as well as the contingent down payments for each:

Loan TypeDown Payment
Commercial Auto Loan0% or more, dependent on buyer profile
Commercial Truck Loan10% - 50%, dependent on buyer profile

Due to the existing collateral—the vehicle financed—for these loans, some lenders are willing to cover the cost of a new vehicle, no down payment required. 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 TypeDown Payment
Unsecured Business LoanNo down payment, high interest rates
Secured Business LoanNo down payment, requires collateral
Equipment Financing0% - 20% of equipment value
Inventory Financing10% - 40% of liquidation value
Vendor Line of CreditNo down payment

The down payment requirements can vary based on the need for underlying collateral, use of proceeds, or profile of the borrower. Many lenders offer these in an array of different loan structures, so the borrower should explore all available avenues before committing to one lender or another.

How Much Down Payment Should I Put Down?

Just because a lender allows you to put 10% down, or no money down on a business loan, doesn’t mean that you should. No down payment business loans may cost your business in interest costs over the life of the loan, especially for big-ticket purchases, such as mortgages and auto loans.

Additionally, commercial mortgages will require the borrower to pay for private mortgage insurance (PMI) until the amount of equity ownership in the home reaches 20%, thereby increasing borrowing costs substantially. 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. Read our article on down payments for a more in-depth explanation on how they may impact your loan.

Down Payment Assistance

Businesses experiencing cash flow shortages may have difficulty producing a down payment for a loan. For entities that don’t have the short-term cash to spare, here are some options that may lower the down payment hurdle:

  • Obtain government assistance: SBA loans and loans sponsored by government entities—such as the USDA—achieve two goals: they require lower down payments than private business loans, and they 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. You may also further increase the yield on those savings by contributing them towards conservative short-term investments, such as FDIC-insured savings accounts, money market funds, or certificates of deposits scheduled to mature in tandem with the planned purchase. Stocks, mutual funds, and other traditionally long-term investments are not appropriate for this strategy due to the risk of loss.

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