For most business owners, the biggest hurdle to buying a building isn’t the monthly payment. It’s the down payment.
With a conventional commercial mortgage, coming up with 20% to 30% of the purchase price can mean draining the cash your business needs to operate. That’s exactly the problem the SBA 504 loan was designed to solve.
Here’s how much you’ll typically need to put down, how it compares to other options, and what can count toward your down payment.
The Standard SBA 504 Down Payment: 10%
Most SBA 504 projects require just 10% down. The rest of the project is split between two lenders:
| Portion | Source | Share of Project |
|---|---|---|
| First mortgage | Bank or credit union | 50% |
| Second mortgage | Certified Development Company (CDC), backed by the SBA | 40% |
| Down payment | Your business | 10% |
That 10% applies to the total project cost, which can include the purchase price, renovations, and many closing costs.
When the Down Payment Goes Up
There are two situations where the required down payment increases:
- Startups: If your business has been operating for less than two years, the down payment rises to 15%.
- Special-purpose properties: Buildings designed for one specific use, like hotels, car washes, gas stations, or bowling alleys, also require 15% down.
If both apply, such as a new business buying a hotel, the down payment is 20%.
| Situation | Down Payment |
|---|---|
| Established business, general-purpose building | 10% |
| Startup (under 2 years) | 15% |
| Special-purpose property | 15% |
| Startup and special-purpose property | 20% |
Even at 20%, that’s often still at or below what a conventional lender would ask for.
How the 504 Compares to Conventional Loans
Conventional commercial mortgages commonly require 20% to 30% down, depending on the lender, the property, and your financials.
Here’s what that difference looks like on a $1.5 million building:
| Loan Type | Down Payment | Cash Needed |
|---|---|---|
| SBA 504 (10%) | 10% | $150,000 |
| Conventional (25%) | 25% | $375,000 |
That’s $225,000 that stays in your business for payroll, inventory, equipment, or a cushion for slower months.
What Can Count Toward Your Down Payment?
Your down payment doesn’t always have to be all cash out of pocket. Depending on your project, a few other sources may count:
- Business or personal cash is the most common source
- Equity in land you already own. If you’re building on land you purchased earlier, the equity in that land can often count toward your contribution
- Gifts from family members, with proper documentation
- Seller financing may be allowed in some cases, as long as it meets SBA requirements
Every project is different, so it’s worth talking through your specific situation before you assume you need the full amount in cash.
Don’t Forget Closing Costs
Beyond the down payment, buying a building comes with closing costs like appraisals, environmental reports, title insurance, and loan fees.
One advantage of the 504 is that most SBA and CDC fees can be financed into the loan rather than paid upfront. That helps keep even more cash in your business at closing.
How Long Does the Down Payment Have to Be Ready?
Your down payment is typically due at closing, when the bank’s first mortgage funds the purchase. It helps to have the funds identified and documented early in the process, since your lender will want to verify where the money is coming from.
Run the Numbers on Your Project
Want to see what your down payment and monthly payment could look like? Our SBA 504 loan calculator lets you plug in your project cost and see a full breakdown.
For more on how owner-occupied loans work, read our guide to owner-occupied commercial real estate loans.
Talk With Our Team
Intermountain Business Lending helps Utah business owners use the SBA 504 program to buy and build with less money down. We’ll walk you through what your project would require and how to make the numbers work.
Contact us to get started.