How Much is the SBA 7(a) Down Payment?
SBA 7(a) loan downpayment is lower than a standard business loan. If you qualify, you may pay as little as 5 or 10% down, depending on the lender’s policies, purpose of the loan, amount borrowed, your credit history, and more.
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If you’re looking at taking out a business loan, one of the things you’re naturally curious about is whether the lender will require you to make a down payment as part of the deal. The answer depends on a number of factors, including the purpose of the loan and your credit history. The good news is that SBA 7(a) loans often allow borrowers to arrange lower down payments than they would need with a standard business loan.
SBA 7(a) Loan Basics
U.S. Small Business Administration (SBA) 7(a) loans exist to give business owners an option when they’re unable to arrange financing through private sources. Requirements for some SBA 7(a) loans are less stringent than standard business loans. Business owners can also borrow smaller amounts than banks would normally be willing to lend in other circumstances.
Under the 7(a) loan program, the SBA doesn’t lend money to business owners directly. Instead, it helps business owners prepare loan applications for lenders on the front end of loan applications. The SBA also guarantees loans up to certain maximums, which helps entrepreneurs get financing to start a new business, expand their existing one, buy equipment, or obtain working capital and inventory.
SBA 7(a) Loan Guarantees
The SBA guarantees business loans as follows:
Five million dollars or 75% of the loan amount, whichever amount is less.
Small loans of less than $150,000 are guaranteed up to 85% of the loan amount, which is $127,500.
This extra layer of protection in case of default means that the rules around SBA 7(a) down payments and other SBA loan terms are more relaxed than for other types of business loans.
Minimum SBA 7(a) Downpayment Amounts
One of the advantages of getting this type of business financing is the low down payment requirement. It is possible to arrange a commercial business loan with as little as 5% down. A 10% down payment for an SBA 7(a) loan is much more common for borrowers.
Qualify for the Lowest SBA 7(a) Down Payment for your Situation
When you are approaching for a bank loan for your business, you’ll want to keep the Boy Scout motto, “be prepared,” in mind. You’ll want to make sure that your application is complete. Missing documents will only cause delays.
Required Documents for a Business Loan
The following is a general list of documents required when applying for a business loan. Be sure to check with your lender to find out whether there is anything else required for your SBA loan application.
Federal tax returns (last three years)
Owner’s and partner’s, if any, personal income tax returns (last three years)
Year-end and year-to-date financial statements
Business plan
You can’t change less-than-favorable aspects of your loan application, such as blemishes on your credit history, but you can be direct about what happened in the past, what you learned from it, and what your plans are moving forward. Check this article to know How to Fill Out Paperwork for the SBA 7(a) Loan
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Related Questions
What is the minimum down payment for an SBA 7(a) loan?
The minimum down payment for an SBA 7(a) loan is 5%. For loans of less than $150,000, the SBA guarantees up to 85% of the loan amount, which is $127,500.
For more information, please see this page.
What are the requirements for an SBA 7(a) loan?
The SBA 7(a) loan has the following requirements:
- Your business must operate for profit. Nonprofits and not-for-profit businesses are not eligible.
- You must also have some equity in the business — this could mean you already have a profitable business, or you could use your own personal equity as collateral.
- If you have any alternative financial resources, you must have used them first. For example, if you have a personal savings account or are able to get a personal loan, then you must first pursue those options before applying for an SBA 7(a) loan.
- The business owner cannot be on parole.
- You must be doing business in the U.S. or its territories.
- A maximum loan amount of $5 million with no minimum loan amount (most loans, however, are $30,000 or more).
- The business must meet the SBA's size standards for its particular industry.
- The business must have fewer than 500 employees and less than $7.5 million in revenue each year for the previous three years.
- The business must physically be based in the U.S. and operate within the U.S. and its territories.
- Business owners must first have used other sources of financing, including personal funds, in order to qualify.
- Businesses must not be involved in lending, real estate, or speculation.
What are the advantages of an SBA 7(a) loan?
The advantages of an SBA 7(a) loan include:
- Highly competitive, low interest rates
- Long loan terms, up to 25 years
- Fixed and variable-rate options are available
- A variety of businesses are eligible
- Low down payments, typically around 10-20%
- Variety of loan options, including SBA 7(a) express loans, SBA 7(a) CAPLines
- Most SBA loans, including 7(a) loans are fully amortizing, meaning borrowers don’t have to worry about balloon payments
How long does it take to get approved for an SBA 7(a) loan?
The length of time it takes to get approved for an SBA 7(a) loan depends on the type of loan processing used. Standard 7(a) loan processing takes between 7-10 business days, while Certified Lenders Program (CLP) processing takes only 3 business days.
For more information, please see the following sources:
What are the eligibility requirements for an SBA 7(a) loan?
The eligibility requirements for an SBA 7(a) loan include:
- The business must meet the SBA's size standards for its particular industry.
- The business must have fewer than 500 employees and less than $7.5 million in revenue each year for the previous three years.
- The business must physically be based in the U.S. and operate within the U.S. and its territories.
- The business must operate for profit.
- Business owners must first have used other sources of financing, including personal funds, in order to qualify.
- Businesses must not be involved in lending, real estate, or speculation.
- Your business must operate for profit. Nonprofits and not-for-profit businesses are not eligible.
- You must also have some equity in the business — this could mean you already have a profitable business, or you could use your own personal equity as collateral.
- If you have any alternative financial resources, you must have used them first. For example, if you have a personal savings account or are able to get a personal loan, then you must first pursue those options before applying for an SBA 7(a) loan.
- The business owner cannot be on parole.
- You must be doing business in the U.S. or its territories.