SBA loan down payment rules

The equity injection is the first item to settle on an acquisition and the last one most buyers look at. Credit gets attention because it is a number the buyer already knows. Collateral gets attention because the lender raises it early. The injection sits behind both, gets treated as an arithmetic problem, and then turns out to be a sourcing problem three weeks before closing.

The SBA’s current lending rulebook, called SOP 50 10 8, took effect on June 1, 2025 and reinstated a hard 10 percent requirement on changes of ownership and new businesses. There is no lender discretion in it. A lender who wants the deal, a lender who has known the seller for twenty years, and a lender with room in their portfolio are all looking at the same rule. What varies between lenders is which sources of the injection they will accept and how much documentation they want, which is a real difference and a much smaller one than buyers expect.

The 10 percent is measured against total project cost

The most common mistake is measuring against the purchase price. The requirement attaches to the total project cost, which includes the purchase price plus closing costs, working capital raised through the loan, any equipment or leasehold work financed at the same time, and the guaranty fee where it is financed rather than paid.

Budget 10 percent of the purchase price and you will come up short, usually by a few tens of thousands of dollars. Find that at the term sheet stage and you can fix it. Find it at closing and you lose the deal.

Build the project cost first, then take 10 percent of it. Ask the lender to confirm their calculation in writing before the appraisal is ordered, because the appraisal is the first meaningful spend.

A seller note counts only when it is on full standby

A seller who agrees to carry part of the price is doing something useful, and whether it helps the injection depends entirely on the standby terms. Full standby means no payments of principal or interest during the standby period. A note that pays interest monthly is debt service, and debt service does not sit where equity sits, no matter how the term sheet describes it.

How much of the required injection a standby seller note may cover is set by the SBA and has moved as the rules are revised. Read the current text before building a structure on it, and get the lender’s reading in writing, because two lenders looking at the same paragraph occasionally reach different conclusions and only one of them is funding the deal.

Open that negotiation early. A seller who carries 10 percent on interest-only terms and a seller who carries 10 percent on full standby are offering you very different deals, and the second one is worth paying more for.

Where the injection comes from, and what a lender will trace

Cash in a business or personal account is the simplest source and the one that raises the fewest questions, provided it has been there long enough to look like savings rather than a recent transfer. Retirement funds can work through a rollover structure, which is a specialist arrangement with its own tax analysis and should involve a CPA before it involves a lender.

A gift is acceptable when it is documented as a gift, with a letter stating that no repayment is expected and no ownership is conveyed. A loan from a family member is not equity, and relabelling it as a gift while a side agreement says otherwise is a fraud problem rather than a paperwork problem.

Home equity is where buyers most often get surprised. Borrowing against a residence to fund the injection converts equity into debt, and the payment shows up in the global cash flow analysis the lender runs on the buyer personally. It can still be the right move. It is not free, and a lender who does not raise it in the first conversation will raise it in underwriting.

Every source gets traced. Expect to produce two or three months of statements for any account the money passes through, and expect a question about any deposit that does not match payroll.

The $350,000 line changes which questions get asked

The same rulebook sets a Small Loan boundary at $350,000. At or under that figure, the application runs a more streamlined process, and above it the full analysis applies. The injection requirement does not change at the line. What changes is how much scrutiny the rest of the file attracts, which affects timing more than outcome.

Two other reinstated requirements matter to acquisition buyers and get missed because they sit outside the loan file. Tax transcript verification is back, so the seller’s reported returns have to match what the broker’s package says. Hazard and life insurance conditions are back, so a buyer who is uninsurable for health reasons has a structural problem worth discovering in month one rather than month four. If the target is a franchise, confirm the brand appears in the SBA franchise directory before spending on diligence.

What to settle before you call a lender

Work through these in order. Each one is cheap to answer now and expensive to answer late.

• Total project cost, itemised. Purchase price, closing costs, working capital, equipment, and the guaranty fee if it is financed. Take 10 percent of the total.
• The source of every dollar of the injection, with the account it sits in and how long it has been there.
• The seller’s position on a standby note, in writing, before the letter of intent is signed.
• The buyer’s own global cash flow, including any borrowing used to raise the injection.
• Insurability and the franchise directory, if either applies.

If you have banked with the same institution for a decade and they run an active SBA department, start there before you start here. An existing relationship where the lender can see the deposit history is worth more than a marginally better structure from a lender who has never seen your name.

If you have not, tell us about the loan and we find the lender that fits it. No credit check to see your matches.

Limits

This covers 7(a) changes of ownership and new businesses. It does not cover 504, and on a real estate purchase a 504 structure often beats 7(a) on rate and on the amount of equity required. If the deal is mostly a building, ask about 504 first.

It does not cover the tax treatment of any structure described here, which is a question for a CPA, and it does not substitute for the rulebook itself. Every figure above is read from SOP 50 10 8 and the regulations it implements. SBA revises its operating procedures at least annually, and procedural notices land between revisions, so confirm the current text before relying on any of it.

Summary

Ten percent of total project cost, sourced from money that a lender can trace and that carries no repayment obligation. Settle the arithmetic and the sourcing before the letter of intent, get the lender’s calculation in writing before the appraisal, and treat a seller’s willingness to stand fully behind a note as a term worth negotiating for rather than a detail to paper later.