How much down payment do you need for an SBA loan to buy a business?
Short answer
At least 10% of the total project cost, not just 10% of the price. For a first-time purchase (SBA calls it an Initial Acquisition) that 10% can't be waived. A seller note on full standby can cover up to half of it, and if the price is higher than the independent valuation, you pay the difference in equity on top.
The 10% figure gets repeated everywhere, and it's right as far as it goes. What trips buyers up is the base it's calculated on, which sources of money count, and what happens when the valuation comes in under the price. Those three things decide how much cash you actually bring to closing. Here's how it works for loans that get an SBA loan number on or after October 1, 2026, when SOP 50 10 8.1 took effect.
The rule in one table
SBA sorts every change of ownership into one of four types. The type sets the minimum equity and whether your lender is allowed to bend it.
| Transaction type | Minimum equity | Can the lender reduce it? | Calculated on |
|---|---|---|---|
| Initial Acquisition (you're a new owner) | 10% | No | Total project cost |
| Business Expansion (your existing business buys another in the same industry group) | 10% | Yes, with enough liquidity and working capital and no negative net worth | Total project cost |
| Owner Buyout (existing owners or long-time employees buy out others) | 10% | Yes, same test | Purchase price in the purchase agreement |
| ESOP or cooperative buying 51% or more | None required by SBA | n/a | n/a |
Most people reading this are buying their first business, which makes it an Initial Acquisition. For you, 10% is a floor. No lender can waive it, however strong your résumé or credit.
Total project cost is bigger than the price
Total project cost means everything needed to take over and run the business, whoever pays for it: the purchase price, working capital, closing costs, the SBA guaranty fee if it's financed, packaging fees and the due diligence reports. The two things left out are lines of credit and 504 loans.
So a $1,000,000 business with $80,000 of working capital and $45,000 of closing costs is a $1,125,000 project, and your minimum equity is $112,500, not $100,000. Ask your lender for a sources-and-uses table early. It's the single most useful page in an SBA deal, and it shows you exactly what the 10% is 10% of.
What counts as your down payment
SBA splits equity into two buckets. Unlimited sources can make up the whole injection. Limited sources together can't be more than half of it.
| Source | Bucket | What the lender will want to see |
|---|---|---|
| Your own cash (savings, sale of investments, cash on a business balance sheet) | Unlimited | Bank statements showing the money is yours and not borrowed |
| Gifted cash | Unlimited | Gift letter and the transfer on a statement |
| Personal loan to a guarantor (for example, a loan against your home) | Unlimited, but only if repaid from a source other than the business's cash flow | Proof of the outside repayment source. Salary from the business you're buying doesn't count |
| Grants with no repayment or clawback | Unlimited | Grant terms |
| Prepaid project expenses (deposit, valuation fee, QoE fee) | Unlimited | Paid invoices, canceled checks or bank statements |
| Seller note on full standby | Limited (max half) | SBA Form 155 or the lender's equivalent, with the note attached |
| Other standby debt | Limited (max half) | Standby agreement; the lender can't take equity in the business |
| Minority investor with under 20% and no control | Limited (max half) | Investment terms; no distributions except for taxes until the SBA loan is repaid |
Two things never count: money you spent on education or advisory services, and fees paid to a loan agent or broker.
A worked example
Illustration, not a real deal
Say you're buying a commercial cleaning company. The agreed price is $1,200,000. You need $50,000 of closing costs and fees, and you're not adding working capital. Total project cost is $1,250,000.
- Minimum equity: 10% × $1,250,000 = $125,000.
- Most a seller standby note can cover: half of that, $62,500.
- So you bring at least $62,500 from unlimited sources, and the 7(a) loan covers up to $1,125,000.
Now the valuation comes in low
The lender orders an independent business valuation, and it concludes the business is worth $1,100,000. Under Appendix 15, the debt supporting the purchase is capped at the valuation amount, and anything paid above the valuation has to be equity.
- Price above value: $1,200,000 − $1,100,000 = $100,000, which has to be equity.
- With debt capped at the $1,100,000 valuation, the equity needed for the $1,250,000 project is $1,250,000 − $1,100,000 = $150,000. That's more than the $125,000 minimum, so the valuation is now the binding test.
- The seller standby note still counts toward the required $125,000 only up to half, $62,500. Any extra limited-source money brought in to cover the gap has to be on full standby too.
In practice this is where deals get renegotiated. A $100,000 gap is usually better solved by bringing the price toward the valuation, or by moving part of the price into a standby note, than by the buyer finding another $25,000 at the last minute. Your lender's credit memo will show which test is binding; ask to see the numbers.
Lenders also check the debt service. On deals of $3 million or more, the lender has to use the earnings from a Quality of Earnings report to calculate debt service coverage. If those earnings don't cover the payments at 1.25x for an Initial Acquisition, the loan gets smaller and the gap is filled with more equity. See SBA DSCR requirements.
Seller notes: the detail that matters
"Full standby" means no payments of principal or interest for the entire term of the SBA loan. Interest can accrue and be paid after the SBA loan is gone. A note with even small payments isn't standby, so it doesn't count as equity. It counts as debt, goes into the debt service coverage calculation and into the total-debt-versus-valuation test. Some buyers want both: a standby piece that counts toward equity and a separate paying piece the cash flow can carry. That's allowed if the numbers work. More in SBA seller financing requirements.
Earnouts, where part of the price depends on future performance, are prohibited in SBA change-of-ownership deals. A seller rebate to the buyer based on performance is allowed, but the money goes to pay down the SBA loan.
When the 10% can be lower
Only two transaction types allow it. In a Business Expansion or an Owner Buyout, the lender may reduce or eliminate the injection if the business has enough liquidity and working capital to keep running after closing and didn't have a negative net worth at its last fiscal year-end. If the lender waives it, no permanent working capital can go into any 7(a) term loan for 90 days, apart from a small amount for closing adjustments (the larger of $10,000 or 0.5% of the loan). Working capital has to come from cash on hand or a line of credit instead.
If you've read that you can buy a business with "zero down" using an SBA loan, that was never true for a first-time buyer, and under SOP 50 10 8.1 it's spelled out: the Initial Acquisition injection can't be reduced or eliminated.
A checklist before you make an offer
- Build a sources-and-uses table with every cost, then take 10% of the total.
- Count only cash you can document for at least the statements your lender asks for. Large recent deposits will need explaining.
- Decide early whether the seller will carry a standby note, and put "full standby for the life of the SBA loan" in the LOI.
- Keep a cushion for a valuation gap. Assume the lender's valuation could land below your price.
- Keep receipts for deposits and report fees; they can count toward your injection.
- Don't plan on an earnout to bridge a price gap. It isn't allowed.
This page describes SBA's rules as published in SOP 50 10 8.1 with technical updates, effective October 1, 2026. Your lender can be stricter than SBA, and many are, especially on cash reserves after closing.
Common questions
Is the SBA down payment 10% of the purchase price or of the whole deal?
Of the whole deal. SBA bases the equity injection on total project cost: the price plus working capital, closing costs and anything else needed to get operating, whatever the source of funds. Lines of credit and 504 loans are left out. Owner Buyouts are the exception: there it's based on the purchase price.
Can a seller note count as my down payment?
Partly. Seller debt that is subordinated and on full standby (no principal or interest payments for the life of the SBA loan) counts as equity, but standby debt, seller standby notes and small minority investors together can provide no more than half of the required injection.
Can I borrow the down payment?
Only in a narrow way. A personal loan to a guarantor can count if you can show it will be repaid from something other than the business's cash flow. Your salary from the business doesn't qualify. Gifts of cash count in full.
Does paying for the valuation or QoE count toward the 10%?
Yes. Under SOP 50 10 8.1, money the buyer spends on the required financial due diligence reports can count toward the equity injection, as long as the lender can verify it was paid.
What if I already own a business and I'm buying a competitor?
If it qualifies as a Business Expansion (two full fiscal years under current ownership, same four-digit NAICS group), the lender may reduce or waive the 10% when the business has enough liquidity and working capital and no negative net worth. Working capital then has to come from cash or a line of credit.
Related guides
Sources
This guide explains rules and practice in plain English. It isn't legal, tax or credit advice, and SBA and IRS rules change. Check the current SOP, regulations and your lender's requirements before you rely on anything here. Examples with made-up businesses are illustrations, not real deals.