10% of what? The down payment math most applicants get wrong.
By the AceTheSBA team
SBA calls a down payment an equity injection: the money the owners put into the project themselves. The rule sounds simple. The way it is measured is where applicants get caught.
The rule
- 7(a) start-ups and business purchases: at least 10% of total project costs. For buying a business, it cannot be reduced.
- 504 projects: 10%, rising to 15% for a new business or a special-purpose property, and 20% if both apply.
- Other existing businesses: SBA sets no fixed minimum; the lender decides.
The mistake
The 10% is calculated on the project, not the loan. If a start-up’s total project is $400,000, the injection is at least $40,000, even if the SBA loan is only $300,000 and other financing covers the rest.
If you are buying a business, a seller note on full standby, meaning no payments for the life of the SBA loan, can count. But limited sources like it can cover no more than half of the required injection. The rest must come from your own cash, a gift or another unlimited source.
The lender’s view
Lenders verify the cash before releasing a single dollar of the loan: the check or wire, at least 30 days of statements from the account it came from, and proof it reached the business or escrow. A gift letter on its own is not enough, and a large unexplained deposit shortly before you apply will be questioned.
Your move this week
Where do you stand?
Funding fit, meaning how clear your request is and whether your equity is in place, is one of the five areas the SBA Readiness Report scores. It takes six minutes and costs $19.99, and it shows the gaps before a lender does.
This week’s tool
Work out the equity SBA requires for your project and document where it comes from.
$29.00