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Can You Use a Gift as a Down Payment on an SBA 7(a) Loan?
Fortunately for SBA loan borrowers, there’s nothing preventing you from using a gift as a down payment on an SBA 7(a) loan . In most cases, however, the gift must be a from a family member. Otherwise, the lender may be concerned that the gift is actually a loan in disguise— and, that it might h
Fortunately for SBA loan borrowers, there’s nothing preventing you from using a gift as a down payment on an SBA 7(a) loan. In most cases, however, the gift must be a from a family member. Otherwise, the lender may be concerned that the gift is actually a loan in disguise— and, that it might have undisclosed terms that could actually hinder a borrower’s repayment of their SBA 7(a) loan.
How Much of a Down Payment do I Need?
Depending on your creditworthiness, the size of your SBA loan, and your lender’s individual preferences, you’ll probably need to put down anywhere between 10% and 30% of the entire loan amount. However, if you want to buy an existing business, the SBA’s new policy permits you to do so with as little as 10% down, 5% of which can come from a seller note. To get that much financing, though, you’ll need to have both a lender and a seller who are on board with your goals.
Other Methods to Acquire the Funds for an SBA 7(a) Loan Down Payment
While getting a gift from a family member is a fantastic way to fund the down payment for your SBA 7(a) loan, its far from the only way to get the money you need. Other options include:
Using tax-deferred retirement funds in a 401(k) or IRA through the Rollovers as Business Start-Ups (ROBS) program
Getting a cash-out refinance or home equity line of credit (HELOC) on your home, or even a cash-out refinance or line of credit on a commercial property that you own
Taking out a personal loan (though this can be much riskier due to higher interest rates)
What are the requirements for using a gift as a down payment on an SBA 7(a) loan?
You can use a gift from a family member as a down payment on an SBA 7(a) loan. The amount of the down payment will depend on your creditworthiness, the size of the loan, and your lender's individual preferences. Generally, you will need to put down between 10% and 30% of the entire loan amount. If you are buying an existing business, the SBA's new policy permits you to do so with as little as 10% down, 5% of which can come from a seller note.
In addition to a gift from a family member, there are other methods to acquire the funds for an SBA 7(a) loan down payment. These include using tax-deferred retirement funds in a 401(k) or IRA through the Rollovers as Business Start-Ups (ROBS) program, getting a cash-out refinance or home equity line of credit (HELOC) on your home, or even a cash-out refinance or line of credit on a commercial property that you own, and taking out a personal loan.
If a borrower does decide to use a loan to finance their SBA down payment, they need to be able to prove that they can pay it back with income not derived from the business they are getting the SBA loan for. For example, if a borrower were to take out a personal loan to fund their SBA loan downpayment, and they had a full time job (or their spouse had a full time job) separate from their business, this would be an acceptable source of income.
What types of gifts are accepted as a down payment for an SBA 7(a) loan?
The SBA 7(a) program accepts gifts from family members as your down payment. Income from a spouse’s job is another permitted source.
Are there any restrictions on the amount of a gift that can be used as a down payment for an SBA 7(a) loan?
Yes, there are restrictions on the amount of a gift that can be used as a down payment for an SBA 7(a) loan. According to the SBA's Standard Operating Procedure (SOP) 50 10 5 Subpart B, the maximum amount of a gift that can be used as a down payment is $5,000. Additionally, the gift must be from a relative or close friend, and the borrower must provide a gift letter that includes the donor's name, address, and phone number, the amount of the gift, and the donor's relationship to the borrower.
Are there any other requirements for using a gift as a down payment on an SBA 7(a) loan?
Yes, there are other requirements for using a gift as a down payment on an SBA 7(a) loan. The gift must be from a family member, and the borrower must be able to prove that they can pay it back with income not derived from the business they are getting the SBA loan for. For example, if a borrower were to take out a personal loan to fund their SBA loan downpayment, and they had a full time job (or their spouse had a full time job) separate from their business, this would be an acceptable source of income.
Additionally, depending on the borrower's creditworthiness, the size of the SBA loan, and the lender's individual preferences, the borrower may need to put down anywhere between 10% and 30% of the entire loan amount. However, if the borrower is buying an existing business, the SBA's new policy permits them to do so with as little as 10% down, 5% of which can come from a seller note. To get that much financing, though, the borrower will need to have both a lender and a seller who are on board with their goals.
What are the benefits of using a gift as a down payment on an SBA 7(a) loan?
Using a gift from a family member as a down payment for an SBA 7(a) loan is a great way to fund the loan. Benefits of using a gift include:
- No need to pay back the gift
- No interest payments
- No need to use personal assets
In addition to gifts from family members, other sources of funds for an SBA 7(a) loan down payment include:
- Using tax-deferred retirement funds in a 401(k) or IRA through the Rollovers as Business Start-Ups (ROBS) program
- Getting a cash-out refinance or home equity line of credit (HELOC) on your home, or even a cash-out refinance or line of credit on a commercial property that you own
- Taking out a personal loan (though this can be much riskier due to higher interest rates)
It’s important to keep in mind that if a borrower does decide to use a loan to finance their SBA down payment, they need to be able to prove that they can pay it back with income not derived from the business they are getting the SBA loan for. For example, if a borrower were to take out a personal loan to fund their SBA loan downpayment, and they had a full time job (or their spouse had a full time job) separate from their business, this would be an acceptable source of income.
It’s important to keep in mind that if a borrower does decide to use a loan to finance their SBA down payment, they need to be able to prove that they can pay it back with income not derived from the business they are getting the SBA loan for. For example, if a borrower were to take out a personal loan to fund their SBA loan downpayment, and they had a full time job (or their spouse had a full time job) separate from their business, this would be an acceptable source of income.