How much down payment you need to buy a business
With an SBA 7(a) loan, plan on at least 10% of the total project cost, not just 10% of the price. Here is what that includes, what counts toward it, and a worked example.
10% of the total project cost
The total project cost is everything it takes to buy the business and run it: the purchase price, working capital, closing costs, and the SBA guaranty fee if you finance it. When you buy the whole business, the SBA requires at least 10% of that total as equity, and it cannot be reduced. Many lenders ask for more on riskier deals.
A worked example
| Line | Amount |
|---|---|
| Purchase price | $400,000 |
| Working capital | $25,000 |
| Closing costs | $12,000 |
| SBA guaranty fee (about 3% of the guaranteed part, financed) | about $9,000 |
| Total project cost | about $446,000 |
| Your 10% equity | about $44,600 |
| SBA 7(a) loan | about $401,000 |
At about 10% interest over 10 years, that loan costs about $5,300 a month, or $64,000 a year. To cover those payments 1.25 times, the business needs about $80,000 a year in cash flow available for debt payments.
What counts as equity
- Your own cash that is not borrowed, including savings and a documented gift.
- A personal loan only if you repay it from a source other than the business, such as your salary from another job.
- Prepaid expenses you can document, such as a valuation or quality-of-earnings report you paid for.
- Grants that do not have to be paid back.
What counts for only half
A seller note that is subordinated to the lender and on full standby, meaning no principal or interest payments for the whole term of the 7(a) loan, can count as equity, but only for up to half of the required 10%. The lender documents it with SBA Form 155 or its own standby agreement. Interest can still accrue. Minority investors who own under 20% and have no control also fall in this half.
In the example above, a $22,300 seller note on full standby could cover half the equity, and you would bring the other $22,300.
What does not count
- Money you borrow and repay out of the business's cash flow or your pay from it.
- A seller note with payments. That is debt: it counts in the 1.25 times test, not as equity.
- Fees for education, advisory services or tools you buy, such as the $99 Loan-Ready Packet.
If the price is above the valuation
The lender's valuation caps what it will finance. If you agree to pay more than the business is valued at, the difference comes from your equity on top of the 10%. This is one of the most common reasons deals need more cash than buyers expect.
Run your own numbers
Every listing with a published price and cash flow shows an estimated payment. The $99 Loan-Ready Packet works out sources and uses, your 10% equity and coverage for a specific deal, and shows a lender how the money adds up.
Example figures are estimates using prime at 7.00% (October 2026) and the FY2027 guaranty fee; your lender decides the real numbers. General information, not lending advice.