Do SBA loans require a down payment, and what DSCR do they need?

By Josh Elberg, founder of Palavir · Published · Updated

Palavir is a Michigan data and automation consultancy.

Short answer

Yes. To buy an existing business with an SBA 7(a) loan (an Initial Acquisition), you must put in at least 10% of the total project cost yourself, and the SBA rulebook says that cannot be reduced. The lender also tests that the business's earnings cover at least 1.25 times all the debt payments after the purchase.

On our rough test, 89% of the 1,809 US listings with a clear price and profit show seller-stated profit of at least 1.25 times the yearly payments on an assumed loan. A lender's test is usually stricter.

How much do you have to put down?

The SBA calls it the equity injection: the part of the project that comes from you, not the loan. For an Initial Acquisition it is 10% of the total project cost, which is the price plus stock, closing costs and working capital, "regardless of the source of funds".

Here is an illustration. Take the middle of the 949 clean US listings asking $250,000 to under $2,000,000: it asks $600,000. Assume stock, closing costs and working cash add 15% (our assumption). The project is $690,000, so the minimum equity is $69,000.

What can count toward it?

  • Cash that is not borrowed counts.
  • Seller debt (a seller note: part of the price you pay the seller over time) can count if it is subordinated to the lender (ranked behind the bank) and on full standby (you pay nothing on it until the bank loan is paid off). It can cover no more than half of the 10%.
  • Fees you pay for education, advisory services or an agent do not count.

See seller financing for how a seller note works. A lender decides what it accepts.

What coverage ratio does the lender need?

DSCR is the debt service coverage ratio. For an Initial Acquisition the SBA rulebook sets it at 1.25:1. It is EBITDA (profit before interest, taxes, depreciation and amortization) divided by the combined debt payments after the purchase. Expansions need 1.15:1. The SBA also says the owner's pay must be enough to cover the owner's own obligations and living expenses.

Our worked example uses the same middle listing and assumed loan terms:

  • Borrow $540,000 (90% of the price) over 10 years at 10%. The yearly payment is about $87,883. Our loan math borrows 90% of the asking price. An SBA lender counts your 10% on the whole project, so with 15% for stock, closing and working cash the cash needed is about $69,000.
  • At 1.25 times, profit must be at least $109,853.
  • The middle listing shows seller-stated profit of $200,427, which is 2.28 times the payment.
  • If the extras are borrowed too, the loan is the project minus your equity: $621,000. The yearly payment is then about $101,065, and the same profit covers it 1.98 times.

That is our rough 1.25 test: seller-stated profit against the assumed loan only. A lender uses EBITDA, all the debt after the purchase, and checks that enough is left to pay the owner.

How many listings pass our rough 1.25 test?

  • under $100,00098%of 249
  • $100,000 to $250,00097%of 303
  • $250,000 to $500,00092%of 375
  • $500,000 to $1 million93%of 343
  • $1 million to $2 million87%of 231
  • $2 million to $5 million75%of 208
  • $5 million and up57%of 100
Share of listings whose seller-stated profit is at least 1.25 times the yearly payments on an assumed loan (90% borrowed, 10 years, 10%). Clear-priced US listings, October 2026. The share runs from 57% at $5 million and up to 98% at under $100,000.

  • under $100,000

    Middle ask
    $55,000
    10% of the ask
    $5,500
    Price in years of profit
    1.97 years
    Pass our test
    98%
    Listings
    249

  • $100,000 to $250,000

    Middle ask
    $174,000
    10% of the ask
    $17,400
    Price in years of profit
    2.40 years
    Pass our test
    97%
    Listings
    303

  • $250,000 to $500,000

    Middle ask
    $350,000
    10% of the ask
    $35,000
    Price in years of profit
    2.66 years
    Pass our test
    92%
    Listings
    375

  • $500,000 to $1 million

    Middle ask
    $697,356
    10% of the ask
    $69,736
    Price in years of profit
    2.97 years
    Pass our test
    93%
    Listings
    343

  • $1 million to $2 million

    Middle ask
    $1,375,000
    10% of the ask
    $137,500
    Price in years of profit
    3.35 years
    Pass our test
    87%
    Listings
    231

  • $2 million to $5 million

    Middle ask
    $2,900,000
    10% of the ask
    $290,000
    Price in years of profit
    4.10 years
    Pass our test
    75%
    Listings
    208

  • $5 million and up

    Middle ask
    $8,500,000
    10% of the ask
    $850,000
    Price in years of profit
    5.23 years
    Pass our test
    57%
    Listings
    100
US listings with a clear price and profit, October 2026. 10% of the ask is the floor on the price alone; the SBA applies 10% to the total project cost, so cash needed is higher. 277 US listings have no asking price and sit in no band.

Why might a listing that passes our test fail with a lender?

  • Seller-stated profit often includes the owner's own pay. If you hire a manager to replace the owner, the profit a lender can count is lower.
  • The ratio uses past results, the last fiscal year or an average of two. A falling year drags it down.
  • The lender counts every debt used for the purchase, including a seller note that is not on standby.
  • Other SBA checks apply. The lender orders a business valuation (it may do its own at $350,000 or less). From a $3 million purchase price, an Initial Acquisition also needs a Quality of Earnings report, an independent check of the profit.
  • A different rate or term changes the payment and so the ratio.

Try your own numbers in the savings calculator, or paste a listing into the free listing check.

What the SBA rulebook says, in its own words

SOP 50 10 8.1, Appendix 15, 7(a) changes of ownership:

"SBA requires equity injections (Applicant contribution) for change of ownership transactions to be based on the total project cost (all costs required to become operational, regardless of the source of funds, except for lines of credit and 504 loans)."
"Initial Acquisition: 10%. For Initial Acquisitions, the required equity injection cannot be reduced or eliminated."
"Seller debt that is subordinated to the Lender and on full standby (no payments of principal or interest for the term of the 7(a) loan) may be considered as equity for SBA's purposes."
"The following sources, whether individually or in the aggregate, may provide no more than half of the required Equity Injection."
"The Debt Service Coverage (DSC) ratio must be satisfied using either the last fiscal year-end or an average of the last two fiscal year-end statements on either a historical or adjusted basis based on the transaction type:" The ratios listed are Initial Acquisition 1.25:1, Business Expansion 1.15:1, Owner Buyout 1.25:1, and ESOP and Cooperative 1.25:1.
"The historical DSC ratio is defined as earnings before interest, taxes, depreciation, and amortization (EBITDA) divided by the combined debt service post-transaction."
"The ownership compensation of the Applicant must be sufficient to support their current obligations and living expenses."

Read it yourself: the SBA SOP 50 10 page, Appendix 15. Many guides online describe older versions, so check the date.

What this data cannot tell you

  • These are asking prices, not the prices businesses sold for.
  • Profit is the seller's own figure. It often includes the owner's pay, so someone still has to do that work.
  • It is a snapshot of listings from October 2026, not a survey of all businesses.
  • Our 1.25 test uses seller-stated profit and an assumed loan. A lender's test uses EBITDA and all the debt after the purchase, so the real answer can differ.
  • Loan terms (90% borrowed, 10 years, 10%) and the 15% for extras are our assumptions, not a lender quote.

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Questions people ask

Do SBA loans require a down payment?

Yes, for an Initial Acquisition (buying an existing business as a new owner). SBA SOP 50 10 8.1, the SBA rulebook for lenders, sets a minimum equity injection of 10% and says it cannot be reduced or eliminated for an Initial Acquisition. A lender may ask for more. Confirm with a lender or SBA attorney.

How much down payment for an SBA loan to buy a business?

At least 10% of the total project cost: all costs required to become operational, regardless of the source of funds, except lines of credit and 504 loans. That means the price plus stock, closing costs and working capital. As an illustration, take the middle of the 949 clean US listings asking $250,000 to under $2,000,000 (ask $600,000) and assume extras of 15% of the price. The project is $690,000 and the 10% is $69,000.

What DSCR does the SBA require to buy a business?

For an Initial Acquisition the SBA rulebook requires 1.25:1. DSCR (debt service coverage ratio) is EBITDA, which is profit before interest, taxes, depreciation and amortization, divided by the combined debt payments after the transaction. The lender may use the last fiscal year or the average of the last two, on a historical or adjusted basis. A Business Expansion is 1.15:1. Owner Buyout and ESOP and Cooperative are 1.25:1.

Can a seller note count as the down payment?

Partly. Seller debt can count toward the 10% if it is subordinated to the lender and on full standby, which means no payments of principal or interest for the term of the 7(a) loan. It can cover no more than half of the 10%. Your lender decides how it applies to your deal.

What share of businesses for sale would meet 1.25x coverage?

On our rough test, 89% of the 1,809 US listings with a clear price and profit show seller-stated profit of at least 1.25 times the payments on an assumed loan (90% borrowed over 10 years at 10%). This is our test, not the lender's EBITDA test. By price band it runs from 57% at $5 million and up to 98% at under $100,000.

Does the SBA require a valuation or a Quality of Earnings report?

A valuation is required on change-of-ownership deals. It is ordered by the lender, which may do its own when the purchase price is $350,000 or less and buyer and seller are not closely related. For Initial Acquisitions and Business Expansions, a Quality of Earnings report (an independent check of the seller's profit) is also required when the purchase price is $3 million or more.

Sources and method

  • SBA, SOP 50 10 8.1, Lender and Development Company Loan Programs (issued by SBA Information Notice 5000-880695; effective October 1, 2026), Appendix 15. Read from the SOP file on sba.gov, October 2026. Confirm with a lender or SBA attorney for a specific deal.
  • Palavir Deal Scout: 3,928 US businesses-for-sale listings, 1,809 with a clear price and profit, October 2026, from nine marketplaces and brokers. Asking prices and seller-stated profit. Repeats, ranges, sold listings and near-identical template listings from broker networks removed.
  • Our rough 1.25 test: seller-stated profit divided by the yearly payment on an assumed loan of 90% of the price over 10 years at 10% (payment = amount borrowed x 0.16275). The middle of each listing's own result is a little different from the result for the middle listing.

General information, not financial, legal or lending advice.