Answer
How much down payment do I need to buy a business?
The 10% SBA minimum, what counts toward it, and the seller-note mechanism that reduces the cash you actually bring.
At least 10% of the total project cost for an SBA-financed acquisition — and total project cost includes the purchase price plus closing costs plus any working capital in the loan. On a $1 million purchase, plan on $100,000 to $150,000. Up to half can sometimes come from a seller note on full standby.
How the money stacks
A typical SBA-financed acquisition is not one number. It is a stack, and the stack is negotiable.
| Piece | Typical share | Notes |
|---|---|---|
| SBA 7(a) loan | 75% to 90% | Ten-year amortization, no balloon |
| Your cash injection | 10% minimum | Must be your money or a documented gift |
| Seller note | 0% to 25% | On full standby, up to half the injection can come from here |
| Earn-out or holdback | Varies | Structured outside the loan |
What counts as your injection
- Cash you have held and can document. Lenders trace the source, usually back two or three months.
- A properly documented gift, with a gift letter.
- Retirement funds through a ROBS structure. Legal, accepted, and genuinely complex — use a specialist provider and your own tax advisor.
- Equity in assets being contributed to the transaction, in some cases.
- Not, generally, borrowed money. A personal loan or a cash advance taken to fund the injection defeats the purpose and lenders look for it.
What actually determines the price you can pay
Buyers focus on the down payment. Underwriters focus on whether the target's cash flow covers the new debt at 1.25x or better after paying you a reasonable salary. If it does not, the deal does not finance at that price — regardless of how much you put down.
- Get three years of the target's returns and financials.
- Compute seller's discretionary earnings, scrutinising every add-back.
- Subtract a market salary for yourself.
- Test the remaining cash flow against the proposed debt service at 1.25x. Use the affordability calculator.
- If coverage fails, the price has to move, the seller note has to grow, or the deal dies.
Down payment by what you are buying
| Purchase | Typical injection |
|---|---|
| Business only, SBA 7(a) | 10% |
| Business plus real estate, SBA 7(a) | 10% |
| Real estate only, SBA 504 | 10%, or 15-20% for single-purpose property or a new business |
| Business, conventional financing | 20% to 30% |
| Partner buy-in | Varies with the partnership agreement |
| Franchise resale | 10%, sometimes less with a strong brand |
Questions people actually ask
Can I buy a business with 10% down?
Yes -- that is the standard SBA 7(a) structure and the most common way small businesses change hands in the US. Remember the 10% is of total project cost, which includes closing costs and any working capital built into the loan, not just the headline purchase price.
Can the seller finance my down payment?
Partly. Up to half of the required equity injection can come from a seller note, provided it is on full standby for the life of the SBA loan. The lender decides whether the note qualifies, and the standby language has to be documented correctly.
Can I use a 401(k) for the down payment?
Yes, through a ROBS -- Rollover as Business Startup -- which lets you use retirement funds as equity without an early withdrawal penalty. The SBA accepts it as a valid injection. It is legal, complex, carries ongoing compliance obligations, and has real downside if done wrong. Use a specialist, not a generalist.