How much a business loan down payment costs you and when it’s required

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.

What is a down payment for a business loan and how does it work?

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.

Do you need a down payment for a business loan?

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.

How much is a down payment on a business loan?

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.

What types of loans require down payments?

Only specific types of business loans usually require a down payment.

CSBFP loans

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.

Commercial real estate loans

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

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

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

Compare business loans with varying interest rates and loan terms.

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Product CAFBL	APR Range	Loan Amount	Loan Term	Minimum Revenue	Minimum Time in Business	Loans Offered	Broker Compliance
Journey Capital Business Loan	8% – 29%	$5,000 - $300,000	4 - 24 months	$100,000/year	6+ months	Term Loan, Line of Credit, Merchant Cash Advance		To be eligible, you must have been in business for at least 6 months with a minimum annual gross revenue of $100,000. Journey Capital offers fast and simple financing. Apply in less than 10 minutes with your basic business information and see your loan offers without hurting your credit score. Get approved within 1 business day, and choose your term, amount and payback schedule once approved.	Go to siteMore Info Compare	loading Fetching your data...
Merchant Growth Business Loan	12.99% – 39.99%	$5,000 – $800,000	6 – 24 months	$10,000 /month	6 months	Unsecured Term, Line of Credit, Merchant Cash Advance		To be eligible, you must have been in business for at least 6 months and have a minimum of $10,000 in monthly sales. Merchant Growth offers financing tailored to business needs. It specializes in providing capital based on future cash flows, but it also offers fixed solutions. Fill out an application within 5 minutes and get your funds within 24 hours.	Go to siteMore Info Compare	loading Fetching your data...
Loans Canada Business Loan	6.99% - 46.96%	$500 - $500,000	3 - 60 months	over $10,000/month	9 months	Unsecured Term	Loans Canada is a loan search platform with access to multiple lenders. Applicants will be matched with a suitable lender based on credit history and borrowing requirements.	To be eligible, you must have been in business for at least 100 days, have a Canadian business bank account and show a minimum of $10,000 in monthly deposits ($120,000/year). Loans Canada connects Canadian small business owners to lenders offering financing up to $500,000. Complete one simple online application and get matched with your loan options.	Go to siteMore Info Compare	loading Fetching your data...

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Factors that determine if your business loan needs a down payment

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.

• Loan purpose. Certain types of business loans, such as those for real estate and equipment financing, are more likely to have down payment requirements.
• Loan amount. Small loans are considered less risky than large loans, so lenders may not require a down payment. But if you want to borrow a large sum, you may have to put down money to qualify.
• Collateral. Your lender may take collateral to help secure a loan instead of a down payment. Or, collateral could reduce the size of the down payment required.
• Credit scores. In some cases, borrowers with excellent personal and business credit may not be required to put money down on a loan.
• Time in business. Startups and new businesses are considered risky borrowers. Lenders may require minimum down payments regardless of business’ ability to repay.

Tips to increase your chances of loan approval with no down payment

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.

• Offer collateral. If you have sufficient business or personal assets, banks may consider getting a lien on those assets instead of a down payment.
• Agree to sign a personal guarantee. If your personal credit is in good shape, some lenders may be willing to accept a personal guarantee and forgo the equity investment.
• Apply online. Online business loans typically don’t have down payment requirements, but interest rates may be higher and loan terms less flexible.
• Request a lower loan amount. Small business loans may not require a down payment, although this option might not be feasible if you need a specific sum.
• Get a cosigner. If you have a close friend or family member with good credit who is willing to cosign your business loan application, you’ll have a better chance of securing the loan.

Alternatives to down payment business loans

As mentioned, not all business loans have down payment requirements, so it’s worth looking into some alternatives that might fit your needs.

• Microloans. Business microloans offer up to $50,000 and don’t usually require a down payment. But you may need to put up collateral or sign a personal guarantee.
• Short-term business loans. Shorter-term loans from online or non-traditional lenders or investors probably may not require down payments. However, the overall cost of the loan could be higher than for loans that require a down payment.
• Business credit cards. Just like personal credit cards, business credit cards don’t require a down payment and can provide funding for a multitude of business needs. The downside is that borrowing limits are lower than other types of funding, and interest rates may be high.

Bottom line

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.

To make sure you get accurate and helpful information, this guide has been edited by Megan B. Shepherd as part of our fact-checking process.

Written by

Lacey Stark

Writer

Lacey Stark is a freelance personal finance writer for Finder, specializing in banking, loans, investing, estate planning, and more. She has 20 years of experience writing and editing for magazines, newspapers, and online publications. A word nerd from childhood, Lacey officially got her start reporting on live sporting events and moved on to cover topics such as construction, technology, and travel before finding her niche in personal finance. Originally from New England, she received her bachelor’s degree from the University of Denver and completed a postgraduate journalism program at Metropolitan State University also in Denver. She currently lives in Chicagoland with her dog Chunk and likes to read and play golf. See full bio

Co-written by

Stacie Hurst

Associate editor

Stacie Hurst is an editor at Finder, specializing in loans, banking, investing and money transfers. She has a Bachelor of Arts in Psychology and Writing, and she has completed FP Canada Institute's Financial Management Course. Before working in the publishing industry, Stacie completed one year of law school in the United States. When not working, she can usually be found watching K-dramas or playing games with her friends and family. See full bio