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Do business loans require a down payment?

by OnDeck Australia,   Oct 18, 2021

Do business loans require a down payment?

Do business loans require a down payment? Many people think so, but the truth is that it depends on the type of loan you’re applying to get. Generally speaking, commercial real estate or home equity loans will require a sizable down payment as collateral to protect the lender if you default on repayments. 

Smaller loans, such as those used to fund business equipment and renovations, typically don’t require a down payment. Keep reading to find out why.

Your small business loan is secured

A secured business loan typically won’t require any deposit because the property or assets you are financing will act as collateral. Collateral is a guarantee the borrower offers to cover some or all losses sustained by a lender if they do not receive payment.

For example, if you were using a business loan to purchase a new piece of equipment, the equipment would act as collateral to secure the loan. If you were unable to make repayments, then the lender could claim the equipment and sell it to recover their losses.

Your business loan is unsecured

Unsecured business loans do not require collateral, and therefore there is more risk to the lender. The lender usually sets the interest rate higher and the repayment term shorter to compensate for this risk, meaning that each repayment will be bigger than with a longer-term, secured business loan.

Unlike secured business loans, unsecured business loans are often reserved for start-ups or small businesses with limited assets. An unsecured loan won’t require a deposit because the higher interest rate and repayments offset the risk to the lender.

What types of business loans need down payments?

If you need to make a down payment, it will most likely be for a commercial real estate or home equity loan. These loans are different from business equipment and unsecured business loans because the property you’re using as collateral is usually your personal residence.

Commercial real estate loans can be used to buy an investment property, such as an investment home or apartment. These loans will typically require a deposit.

Home equity loans are a little more complicated. Technically speaking, a home equity loan does not require a down payment because your home’s equity is being used. However, you need to make sure that your lender doesn’t require a deposit or come up with some other requirement that will reduce the amount of equity you can use.

How much deposit would a commercial real estate loan need?

The deposit required for a commercial real estate loan can vary from as little as 20% to as much as 50%, depending on the lender and the specifics of your situation. Your credit history (business credit score), repayment ability and business cash flow will all be factors in how much you need to save. Learn how to improve your business credit score.

How much deposit would a home equity loan need?

A home equity loan functions similarly to a commercial property loan. Typically, your down payment would be covered either partially or entirely by the equity in your home. The more equity you have built up in your property, the less likely you will need any deposit to secure the loan.

If you do not have enough equity in your home or do not own any real estate, then an unsecured business loan may be the best way for you to secure business finance. OnDeck provides unsecured business loans between $10,000 and $250,000 with an easy application process and low loan origination fees of only 3%. 

Frequently Asked Questions

How much do you have to put down on a business loan?

Typically, you do not have to put any money down for a business loan. The lender will use the value of the business asset or property being purchased as collateral. If a deposit is required, it will usually only be a small percentage of the total loan amount.

How do I get a down payment for a small business loan?

You can get a down payment for a small business loan by selling business assets like any equipment you no longer need or other personal assets. You do not have to put any money of your own into the business to do this, but you do need enough equity in your assets for it to be worthwhile.

Is it hard to get a small business loan?

Getting small business loans is no more difficult than getting other types of finance. You will need to research different loan options and choose the best lender for your business finance needs. If you do not have assets to put down as collateral, look for specialty lenders that work with start-ups and small businesses (like OnDeck).

Does a business line of credit need a deposit?

A business line of credit does not usually require a down payment. If you need to make a deposit or provide collateral, it will be for a business loan or commercial real estate transaction.

Do commercial auto loans need a down payment?

Commercial auto loans typically won’t require a deposit because the vehicle will act as collateral. You will likely need to provide the lender with information on your business (and its assets) like annual revenue and mix of business inventory.


Prepared by OnDeck Capital Australia Pty Ltd ABN 28 603 753 215 (“OnDeck”) for general information purposes only. Content may belong to or have originated from third parties and OnDeck takes no responsibility for the accuracy, validity, reliability or completeness of any information. Information current as at October 2021. You should not rely upon the material or information as a basis for making any business, financial or any other decisions. Loans issued in Australia are subject to the terms of a loan agreement issued by OnDeck. Loans are subject to lender approval. OnDeck® is a Registered Trademark. All rights reserved.

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