If your purchase is an Initial Acquisition (the default for a first-time buyer) financed with a Small Business Administration (SBA) 7(a) loan, you must put in at least 10% of total project cost as equity, and the lender cannot reduce or waive it. Some sources, such as seller debt on full standby, count toward that equity only within limits. That 10% is a floor, not a budget: closing costs, working capital, reserves and your first insurance payments come on top, and your lender can ask for more. Outside SBA programs no neutral rule sets a down payment, so the lender, the seller and any investors decide deal by deal. The SBA figures here follow Standard Operating Procedure (SOP) 50 10 8.1, effective October 1, 2026. Use them to build a sources and uses table (where the money comes from and where it goes) before you sign a letter of intent.
The short answer
- For an Initial Acquisition (the default for a first-time buyer) with an SBA 7(a) loan, the minimum equity injection is 10% of total project cost, and it cannot be reduced or eliminated.
- Total project cost is every cost needed to get the business operating, whatever the source of funds, so it is bigger than the purchase price.
- Seller debt counts toward your equity only if it is on full standby (no payments of principal or interest for the life of the loan), and SBA's rules limit these sources together to no more than half of what is required.
- Closing costs, working capital, reserves and first insurance payments are real cash needs that the 10% floor does not budget for.
- Outside SBA programs, no neutral rule sets a down payment percentage. The lender, the seller and any investors set it deal by deal.
What is the minimum cash a buyer has to put in?
SBA calls the buyer's own money the equity injection. Under SOP 50 10 8.1, the minimum is 10% of total project cost for an Initial Acquisition, a Business Expansion and an Owner Buyout. What differs is whether a lender can lower it:
- Initial Acquisition (the default for a first-time buyer): the requirement cannot be reduced or eliminated.
- Business Expansion and Owner Buyout: the lender may reduce or eliminate it if the borrower has enough liquidity and working capital to sustain operations after the deal and a non-negative net worth at the last fiscal year end. If the lender waives it, no dedicated permanent working capital can be added in a 7(a) term loan within 90 days.
Total project cost means all costs required to become operational, regardless of the source of funds, except lines of credit and 504 loans. That includes the purchase price and the other costs in the table below, so 10% of the price understates the requirement. Lenders can also ask for more than SBA's minimum, and the SOP version that applies depends on the date of your SBA loan number, so ask your lender which one your file is under. The full rules are in how SBA 7(a) acquisition loans work.
What counts as your own money, and what does not?
SBA lets several kinds of money count toward the injection, and your lender's equity worksheet is the document that decides. In short, SOP 50 10 8.1 counts cash that is not borrowed, including gifts, and counts a personal loan to a guarantor only if repayment can be shown to come from a source other than the business. Seller debt on full standby and a non-controlling minority investor are limited sources, and SBA's rules treat them together as no more than half of the required injection. Money you spend on lender-required valuation or quality of earnings reports (an accountant's review of the seller's profit figures) also counts. The full table of sources and the standby rules are in how SBA 7(a) acquisition loans work, so this primer does not repeat them.
Proof matters. For a standard 7(a) loan, the lender must verify your equity before it releases funds. It looks for a copy of the check or wire with evidence it reached the borrower's account or escrow, at least 30 days of statements from the source account showing the funds were there, and a statement or settlement statement showing the funds were deposited or used. A promissory note, gift letter or financial statement alone is not enough. Ask your lender how early the funds must be in the account and what statements it will want. See what happens on closing day.
What other cash do you need besides the equity injection?
The injection is one line in a longer list. Nobody can give you a standard dollar figure for the rest, because each depends on the deal, the lender and the business. This table shows what to size and who can size it.
| Cash need | What it is | Who can size it |
|---|---|---|
| Closing costs and professional fees | Attorney, accountant and lender fees, plus valuation or quality of earnings reports. SBA requires a quality of earnings report for Initial Acquisitions and Business Expansions with a business purchase price of $3 million or more, and buyers and investors may want one below that | Deal counsel, accountant, lender |
| Working capital adjustment | The purchase agreement compares working capital at closing with an agreed target. The price usually moves dollar for dollar with the difference from the target, and is settled after closing on the timetable the agreement sets. See working capital and the peg | Accountant, deal counsel |
| Working capital to run the business | Cash for payroll, inventory, rent and suppliers while receivables build. If a lender waives the injection, SBA says any working capital the deal needs must come from existing cash or a line of credit | You, your accountant, the lender |
| Insurance payments | Down payments and deposits on the policies you need in force at closing (your lender, lease and contracts set the list). These can include property insurance on pledged collateral and life insurance on the owner if the lender requires it. A workers' compensation deposit is an estimate, and the final premium is set at audit | Your insurance broker for property and liability, and a life insurance specialist for any life policy |
| Seller note payments | A seller note that is not on full standby counts toward debt service | Lender, accountant |
| Reserve | Deductibles, a slow month, a repair, an unexpected tax bill, and your own living costs if you take a modest salary at first | You and your accountant |
What does one deal look like on paper?
A hypothetical example. A first-time buyer agrees to pay $750,000 for an asset-light services business and uses an SBA 7(a) loan. Every figure is round and illustrative. It is not a quote, a loan offer or a typical result.
| Sources (money in) | Amount | Uses (money out) | Amount |
|---|---|---|---|
| Lender loan | $742,500 | Purchase price | $750,000 |
| Buyer equity injection (10% of $825,000) | $82,500 | Legal, accounting, valuation and lender fees | $35,000 |
| Working capital funded at closing | $40,000 | ||
| Total | $825,000 | Total | $825,000 |
Ten percent of the price would have been $75,000, but 10% of total project cost is $82,500. The headline number is $82,500. The cash this buyer should actually have ready is larger. Depending on what the lender allows inside project cost, the buyer may want these amounts available on top:
- First insurance down payments and deposits: $20,000 (an illustrative figure, not a premium estimate)
- Room for a working capital adjustment above the target, which usually raises the price dollar for dollar: $20,000
- A personal reserve for a slow month and a deductible: $35,000
That is $75,000 more, so the buyer's liquidity need is about $157,500, roughly twice the equity minimum. If the seller agreed to a note on full standby, part of the $82,500 could come from it, up to the limit the lender applies. That lowers the cash needed at closing, but it adds a debt that is paid later. The buyer's first call is to the lender to ask which items sit inside project cost.
How does the cash need change with other kinds of financing?
The 10% rule belongs to SBA's program. No neutral, dated source gives a typical down payment outside SBA's program, so this primer does not offer one. Treat any article that quotes a single "standard" percentage with caution. This table shows who sets the number in each route.
| Route | Who sets the cash requirement | What to ask |
|---|---|---|
| SBA 7(a) loan | SBA's minimum, plus whatever the lender adds | Which SOP applies, the equity worksheet, and what must be cash |
| Conventional bank loan | The bank's own credit policy | A written term sheet before you sign a letter of intent |
| Seller financing | The seller, within your lender's limits | Whether the note is on full standby and what the senior lender allows. See seller financing and earnouts |
| Investor-backed search fund | The investors, who typically hold a pro rata right to fund the equity once the searcher finds a company | What the investors expect, and how search capital differs from acquisition equity. See how search funds work |
| Self-funded search | You pay search costs yourself and assemble financing after you find a company | How much you can lose before a deal closes. See self-funded search vs a search fund |
Seller financing may not fill a cash gap. In the Q2 2026 Market Pulse from the International Business Brokers Association (IBBA) and its survey partner, the share of deal consideration paid at closing ranged from 83% to 92% across five price bands, and seller financing from 6% to 11%. The chart does not define cash at close, and it may include loan proceeds, so do not read it as the buyer's own down payment. It also does not say whether these are averages, medians or shares of price, so use them for context only, and ask your lender and the seller what is possible in your deal.
Where does insurance show up in your cash plan?
Insurance is often a modest line in the sources and uses table, but it can hold up a closing, because lenders commonly want evidence that coverage is in force before money moves. Four points belong in your model:
- First payments vary. Down payments and deposits depend on the carrier, the payment plan and whether you finance the premium. Ask your broker for the first-payment figure for each policy, not just the annual premium. See premium financing for new owners and pay-as-you-go workers' comp.
- The seller's premium may not be yours. An accountant's quality of earnings work can restate insurance cost to what a new owner will pay, but not every report does. Ask for indications (early price estimates, not firm quotes) before your model is final. See budgeting insurance in your acquisition model.
- SBA and your lender set the requirements. SBA's rulebook sets some insurance itself, such as property insurance on pledged collateral for loans over $50,000, with narrow exceptions, flood insurance where required, and, on a Standard 7(a) loan, life insurance on principals in the amount of the collateral shortfall when the loan is not fully secured and the business depends on one owner (an acquisition financed mostly by goodwill can have a shortfall). The lender decides the rest, such as liability limits, so your loan authorization and loan agreement are your list. Ask which of these apply to you and what the first premiums are. See insurance after an SBA acquisition loan.
- An uninsured loss uses the same cash. A fire or lawsuit that insurance does not pay comes out of the money that services your debt.
A quote is not coverage. Morrow can review the seller's policies and request indications for your program where a carrier will provide one before closing. A quote or review request does not put anything in force, and terms depend on carrier underwriting.
What should you ask before you commit cash?
- Lender: Which SOP applies to my file? What is total project cost on my deal? Which of my sources count as equity, and are there limits? How much cash must I show, and for how long in the account?
- Accountant: How much working capital do I need after closing? What reserve fits the business's seasonality? How does the working capital adjustment affect my cash?
- Deal counsel: How is the price adjustment written? How is any seller note documented, and what does the lender require of it?
- Insurance broker: What are the first payments, and when are they due? What does the lender want to see before closing?
The insurance checklist for buying a business lists the insurance records to request while you are still planning.
Keep reading
- How SBA 7(a) Loans Work When You Buy a Business
- What Happens on Closing Day When You Buy a Business
- Working Capital and the Peg Explained for Business Buyers
- Budgeting Insurance in Your Acquisition Model
- Insurance After an SBA Acquisition Loan: What SBA and Your Lender Require
- All guides for new business owners
Frequently asked questions
Can I buy a business with no money down?
Not with an SBA 7(a) loan for a first-time purchase. For an Initial Acquisition, SBA's rules say the 10% minimum equity injection cannot be reduced or eliminated. A seller note on full standby can count toward part of it, within the limit the lender applies, but that is a debt you still owe. Other lenders and sellers set their own terms.
Is the 10% based on the purchase price or total project cost?
Total project cost. SBA defines it as all costs required to become operational, regardless of the source of funds, except lines of credit and 504 loans. Closing costs and working capital funded at closing can raise the base above the purchase price, so 10% of project cost is usually more than 10% of price.
Can a gift or a loan from family count as my equity?
Cash that is not borrowed, including gifts, counts toward the equity injection under SOP 50 10 8.1. A personal loan to a guarantor counts if repayment can be shown to come from a source other than the business. The lender must verify the funds with documents, so confirm the paperwork it wants before you move money.
Do closing costs count toward my equity?
Not as a category, but SBA lets money you spend on lender-required financial due diligence reports, such as a valuation or quality of earnings report, count toward the injection. Attorney and accountant fees may be part of total project cost, depending on how the lender treats them. Ask your lender how it treats each cost.
How much cash should I keep after closing?
There is no standard. It depends on seasonality, how fast receivables convert to cash, your debt payments and how much you plan to draw as pay. Ask your accountant to model a slow quarter, and ask your broker for the first insurance payments so they are not a surprise.
If I raised a search fund, do my investors cover the equity?
Often the investors hold a right to fund the equity once the searcher finds a company, but the amount and terms are set in the investor documents. Their money does not replace the lender's rules: with an SBA loan, the lender still decides which sources count as equity and which are limited. Ask counsel and your lender before you plan around it.
References
- U.S. Small Business Administration: SOP 50 10 8.1, Lender and Development Company Loan Programs (effective Oct 1, 2026), Appendix 15
- U.S. Small Business Administration: 7(a) loans
- U.S. Small Business Administration: Buy an existing business or franchise
- IBBA and M&A Source: Market Pulse Q2 2026 Highlights (posted August 2026)
- Morgan & Westfield: Net Working Capital (NWC) for M&A, a Complete Guide (sell-side advisory firm, 2026)
- NCCI: Workers Compensation and Employers Liability Insurance Policy WC 00 00 00 C (carrier-hosted copy)
- Stanford Graduate School of Business: A Primer on Search Funds (2026 edition, catalog page)
Just bought a business? Get your insurance reviewed.
Send Morrow the declarations pages, loss runs and key contracts you inherited. Morrow can review them against the business you bought, flag gaps and request quotes where it makes sense. Any new terms depend on carrier underwriting.
Morrow · 25 New Chardon Street, 4th Floor, Boston, MA 02114
This article is general information, not legal, tax or financial advice, and not a coverage determination. Coverage depends on the actual policy wording, carrier underwriting, your purchase agreement and your contracts. Ask your attorney and accountant about deal and legal questions.