Is 10% down for SBA loan on a deal realistic?

March 08, 2022

by a searcher from Georgia State University in Boston, MA, USA

I was just on a phone with a broker and was told to get a deal you realistically need at the very least 20% of cash to put down. I was under the impression it was 10%, if your willing to take the risk of that amount of leverage. Wondering what others experience has been with this?

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Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

It can be confusing because each lender is different and has different requirements.As a general rule the SBA requires 10% buyer equity and many lenders will readily accept 10% down from the buyers.Some lenders require 10% down from the buyer and a 5% or 10% seller note as well.Some lenders want more money down depending on the type of business.The cash flow and working capital needs can impact the amount of cash required down.We have also done plenty of deals with only 5% buyer equity if the seller is willing to carry back a note on full standby for 5% or more of the purchase price.The SBA will allow deals with 5% seller equity if there is at least a 5% seller note on full standby.We are closing one of those transactions now.It is really about finding the best lender willing to offer the best structure for your individual transaction.Some business brokers will shy away from deals requiring SBA financing as they feel it can take longer and many SBA lenders prefer to see seller financing included in the transaction, which the broker may be trying to avoid.But not every deal requires seller financing.I always recommend looking at multiple options for each deal to find the solution that works best for you.Happy to discuss in more detail at any time at redacted

Reply by a searcher
from Harvard University in Colorado Springs, CO, USA

I purchased my business with 5% down, but it's rather difficult to do because banks don't like it (many have internal requirements for 10, 15, or 20% down from the buyer's own funds and most of them really like collateral) and neither do sellers because the portion of the seller's note that makes up the other 5% has to be fully deferred for the life of the SBA note (typically 10 years). I sidestepped this by makinga separate deal with my sellers that I would attempt to refinance within 5 years to pay them out, which was sufficient for them. The most common thing, though, is to get outside equity. In this instance, your personal contribution can be as little as $0. The SBA rules are complicated, though and I'd work with an experienced relationship manager who is at a bank/lending institution who is familiar with deals of this sort. The one that comes to mind first is ^redacted‌. at Fundex. Best of luck!

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