There are plenty of business loans with no down payment requirements. But certain types—such as CSBFP loans, equipment financing and commercial real estate loans—often require an equity injection from the borrower to qualify.
A down payment, also known as an equity injection, is a percentage of the loan amount that some business lenders require up front to approve certain types of loans. Down payments reduce the risk for lenders, which increases the chance you’ll be approved for the loan. Basically, a borrower with a financial stake in a loan is more likely to repay it.
For example, a commercial real estate lender may agree to finance 80% of a $1 million property you want to purchase. That means you would be responsible for putting up $200,000.
The exact percentage required is calculated based on factors like the purpose of the loan, the amount and your creditworthiness. If you can afford more than the minimum down payment required, you may qualify for a better interest rate. Typically, down payments are made at closing using a certified cheque, bank draft or wire transfer.
Not every business loan requires a down payment. Down payments are most often required if you are buying large fixed assets, such as real estate or heavy equipment. Down payments may also be required for startups, new businesses or borrowers with low credit scores.
Down payment requirements vary based on the lender, the purpose of the loan, the loan amount and borrower qualifications. Here’s an idea of what a down payment might cost you by loan type.
| Loan type | Amount | Down payment |
|---|---|---|
| CSBFP loans | Up to $1.15M ($1M for term loans + $150K for lines of credit) | Registration fee worth 2% of the loan amount |
| Commercial real estate loans | Up to 85% of the property value | 15% or more |
| Equipment loans | 80%–100% of the equipment’s value | 0%–20% |
| Business lines of credit | Typically $1K–$1M | None |
| Business term loans | Typically $500–$1.5M | None |
| Microloans | Typically $500–$50K | None |
| Online business loans | Typically $1K–$800K | None |
| Invoice factoring & invoice financing | Typically 75%–90% of unpaid invoices | None |
| Merchant cash advance | Typically up to $500K | None |
Only specific types of business loans usually require a down payment.
The Government of Canada offers business loans through the Canada Small Business Financing Program (CSBFP). Business owners can apply for financing through Canadian banks and financial institutions like TD, CIBC, RBC, Canadian Western Bank, Laurentian Bank and most credit unions and caisses populaires.
CSBFP loans don’t require a down payment per se, but you’ll be charged a registration fee worth 2% of the total loan amount plus fixed or variable interest. Additionally, your bank may charge loan administration fees. The registration fee can be rolled into the loan, which you pay off over time.
Funds can be used for almost any business need, including working capital, inventory, real estate and equipment.
When financing commercial real estate, it’s generally recommended that you provide a minimum down payment of 20%. However, some lenders may require more than that. Commercial real estate mortgages are similar to residential mortgages in that borrowers must invest a percentage of the purchase price to qualify for the loan. A higher-than-required down payment can result in more favorable loan terms.
A property appraisal also plays a role in determining the down payment, along with the financial health of the business and the owners’ credit history.
Equipment loans fall into two categories: loans used to purchase equipment and loans used to temporarily lease equipment or machinery. Either way, equipment financing may require a down payment of up to 20%, but that isn’t a hard and fast rule. Some businesses, particularly online lenders, may not charge a down payment at all. Still, others may accept collateral instead of a down payment.
Business term loans usually don’t require a down payment. But lenders might require down payments for term loans issued for specific purposes like purchasing equipment or commercial real estate. The amount of the down payment depends on the lender, the loan purpose, the loan amount and other factors.
Online business loans often come with easier qualification requirements that bank business loans. Offering collateral and applying with a cosigner can increase your chance of getting approved.
Compare business loans with varying interest rates and loan terms.
There are a number of factors that lenders consider when determining if you need to make a down payment and how much it should be.
If you don’t have the cash to make a down payment, consider these options to boost your chances of loan approval without making a down payment.
As mentioned, not all business loans have down payment requirements, so it’s worth looking into some alternatives that might fit your needs.
There is a business loan to suit almost any business need, and some require down payments of less than 10% to 20% or more. Lenders that offer real estate loans and equipment financing are most likely to require down payments. However, the percentage depends on your business and personal credit, the loan amount, the loan purpose and other factors.
For business owners who can’t afford a hefty down payment, you may be able to offer collateral or a personal guarantee instead. Also, many forms of business funding don’t require any equity injection.
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