SBA Loan Down Payment Rules: What “10%” Really Means

Policy Context Disclaimer: This article reflects SBA policy guidance, including SOP 50 10 8 and related procedural notices, as in effect at the time of writing. SBA eligibility and underwriting outcomes remain subject to lender interpretation, credit policy, and deal-specific facts.

Introduction

If you are buying a business with an SBA 7(a) loan, you have probably heard one number repeated over and over: 10% down. While that figure is often directionally correct, it can also be misleading.

In practice, SBA loan down payment rules are less about a fixed percentage and more about how the buyer’s equity is structured, where it comes from, and how the lender evaluates risk. Understanding what “10%” really means can help you avoid surprises, delays, or restructuring late in the process.

This article breaks down how SBA equity injection works in business acquisitions and how lenders typically view it.

What the SBA Means by “Equity Injection”

In SBA financing, the down payment is formally referred to as an equity injection. Rather than simply writing a check, buyers must demonstrate that they are meaningfully invested in the transaction.

In most change-of-ownership transactions, lenders typically look for a minimum total equity contribution of around 10% of the project cost, though this is subject to lender credit policy and deal specifics.

Equity injection generally must be:

• Cash or cash equivalents
• At risk in the transaction
• Verifiable and properly documented

The SBA itself does not publish a single universal down payment rule. Instead, SBA SOP 50 10 8 provides the framework, and individual lenders apply their own credit standards within that framework.

When the 10% Down Payment Typically Applies

The commonly cited 10% equity injection most often applies to business acquisitions, including:

• Asset purchases
• Stock purchases
• Partner buyouts and partial changes of ownership

In these scenarios, lenders expect the buyer to contribute meaningful capital toward the total purchase price and related costs.

However, 10% should be viewed as a starting point, not a guarantee. Depending on the risk profile of the deal, lenders may require:

• More than 10% equity
• Additional cash beyond closing costs
• Stronger liquidity post-closing

Factors that influence this include buyer experience, cash flow strength, industry risk, and deal structure.

What Can Count Toward the SBA Down Payment

Not all equity looks the same to an SBA lender. Common sources that may count toward the equity injection include:

Buyer Cash

Personal cash invested directly into the deal is the most straightforward and widely accepted form of equity.

Seller Financing on Full Standby

In some cases, a seller note that is on full standby for the life of the SBA loan may be credited toward the equity requirement. This is highly lender-specific and subject to strict documentation and subordination rules.

Earnest Money Deposits

Earnest money paid after an executed letter of intent may sometimes be credited toward the equity injection, provided it is properly documented and applied at closing.

What generally does not count:

• Borrowed funds not permitted by SBA rules
• Seller notes with payments during the SBA loan term
• Unverified or undocumented funds

Each source must be reviewed carefully to ensure SBA compliance and lender acceptance.

Why Some Deals Require More Than 10%

Buyers are often surprised to learn that their lender wants more than 10% down. This is usually not arbitrary.

Common reasons include:

• Limited buyer operating experience
• Thin historical cash flow or tight DSCR
• Customer concentration or industry risk
• Aggressive add-backs or projections
• Complex deal structures

In these situations, lenders may require additional equity to strengthen the transaction and reduce risk. This is where early deal positioning becomes critical.

How Lenders Evaluate the “Real” Down Payment

From a lender’s perspective, the down payment is not just about the percentage. It is about commitment and sustainability.

Lenders look at:

• How much capital the buyer will have left after closing
• Whether the buyer can support the business during a downturn
• How aligned the buyer and seller are post-close
• Whether the capital stack makes sense long-term

A well-structured 10% equity injection can be more compelling than a poorly sourced 15%.

How PCA Helps Buyers Navigate SBA Down Payment Rules

At Pioneer Capital Advisory, we work with buyers after LOI through closing, helping ensure their equity injection is SBA-compliant, lender-ready, and clearly presented.

Our role includes:

• Reviewing sources and uses of funds
• Identifying lender-specific equity expectations
• Coordinating with lenders on acceptable structures
• Helping buyers avoid late-stage equity surprises

While we do not provide funds or structure legal entities, we guide buyers through the financing process so their deal is positioned correctly from the start.

Conclusion

The SBA loan “10% down payment” rule is real, but it is not absolute. It is a guideline shaped by deal risk, lender discretion, and how the equity is structured.

Understanding what counts, what does not, and how lenders evaluate equity can make the difference between a smooth closing and a stalled transaction.

If you are under LOI or preparing to submit a deal to lenders, working through these questions early can save significant time and friction later in the process.

General Disclaimer

The information contained in this article is provided for general informational purposes only and is not intended to constitute legal, tax, financial, or other professional advice. Readers should consult their own legal, tax, and professional advisors regarding their specific circumstances.

SBA guidelines, rules, and interpretations are subject to change from time to time. As a result, information that is accurate as of the date of publication may not reflect subsequent updates or policy changes. If you are reading this article after its publication date, certain information may no longer be fully current.