Down Payments

The Ultimate Guide to Down Payments:

How Much You Need and How to Save Up for It.

The SBA’s 504 loan program is an excellent financing option for small businesses looking to purchase real estate, equipment or make renovations. However, one of the biggest challenges that you as a business owner can face is coming up with the down payment. Find out what a down payment for an SBA 504 loan is, how much of a down payment is typically needed, and the best ways to save for your down payment to get the financing you need. 

What’s a Down Payment for an SBA 504 Loan?

To minimize the lender’s risk, you must provide a percentage of the total project cost as security for repayment. This is known as a down payment for any loan. Specifically for an SBA 504 loan, the down payment is usually around 10% of the total project cost.

How Much Down Payment Is Typically Needed?

Even though the typical down payment is around 10%, the exact amount usually depends on several factors, including your lender’s requirements, your creditworthiness, and the complexity and size of your project.  It’s extremely important to review your down payment requirements with your lender so you are fully prepared at the time of closing.

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Advice on How to Save for a Down Payment for an SBA 504 Loan

For many small business owners saving for a downpayment can be challenging, especially if your resources are limited. Here are some helpful tips on how to save for a down payment:

  • Create a Budget
    You should create a budget to track your business’s revenue and expenses. This will help you clarify what areas you may be able to cut back on to free up funds to use for your down payment. 
  • Reduce Debt
    High-interest debt is never good for your business. You can often save money towards a down payment by paying off and consolidating these types of loans. 
  • Increase Income
    Some small business owners find that temporarily taking on a part-time job is a good option, while others find increasing the prices of their products or services beneficial. 
  • Seek Grants and Other Funding Sources
    NEDCO can help you find grants and other funding sources that may be available.
  • Explore SBA Programs
    In addition to 504 Loans, the SBA offers several programs that help small businesses get financing, including the Microloan and Community Advantage programs.
  • Start Saving Early
    The early bird catches the worm, and down payments are no exception. The earlier you start, the sooner you will have the funds needed for a down payment that could help you take your business to the next level. 

A down payment is an essential part of a 504 loan, and the best way to be prepared is to understand how much you need and then create a solid plan for both coming up with the down payment and repaying the loan. Whether reducing your debt, increasing your income, seeking grants, or exploring additional SBA programs, NEDCO is here to help. Contact us today to learn how we can help you grow your business by assisting with an SBA 504 loan.