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.CSBFP loansUp to $1.15M($1M for term loans + $150K for lines of credit)Registration fee worth 2% of the loan amountCommercial real estate loansUp to 85% of the property value15% or moreEquipment loans80%–100% of the equipment’s value0%–20%Business lines of creditTypically $1K–$1MNoneBusiness term loansTypically $500–$1.5MNoneMicroloansTypically $500–$50KNoneOnline business loansTypically $1K–$800KNoneInvoice factoring & invoice financingTypically 75%–90% of unpaid invoicesNoneMerchant cash advanceTypically up to $500KNoneWhat types of loans require down payments?Only specific types of business loans usually require a down payment.CSBFP loansThe 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 loansWhen 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 loansEquipment 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 loansBusiness 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 loansCompare business loans with varying interest rates and loan terms.Factors that determine if your business loan needs a down paymentThere 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 paymentIf 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 loansAs 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 lineThere 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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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
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
