There was a time when the banks and the lending institutions would lend to the tune of 100%. However, with the series of events in the financial world which saw financers losing their entire money to the market movements, defaults and economic recession, they had to come up with ways to mask their risk of lending. It was observed that the borrowers were found to be averse to defaulting if they had some stake of their own in the loans they take. It was this reason that the lenders were prompted to introduce the policy of down payments in their loans.
With the passage of time down payment has become the norm and one cannot expect a loan without a down payment no matter what loan you take except for a few deviations.
Business loans generally involve huge sums of money and they often are more risky when compared with any other loans. So, let’s take an example to understand this. If you have to take a business loan to enhance your business by means of the purchase of new equipments and machinery and you need s a loan to the tune of $80,000.If everything goes fine right from your filling the application process, documentation , interview, business plan and all you will be approved the loan request. However, once you get the loan documents you will find that the amount approved is just 80% of what you had applied for. So, you will be approved a loan amount of $64000.
If you have outstanding invoices to the amount of $100000 which will be cleared in 30days once you complete the orders but you require extra machinery to complete the same and you apply for a loan to meet those expenses in the real time. You will be granted a loan for around $80,000 with the rest of the amount to be send by you. In such circumstances you should be aware that the funding that you will require will never be the 100% , however it will be the tune of 80% only.
The 80-20 formula for the loans dates back to centuries. If face the banks and the lenders introduced several ways to find that if the borrowers had 20% of their own money involved into the installment loans bad credit they take there are 80% chances that they would not default on the business loans taken by them.
Slowly this became the norm in the lending industry and this worked wonders for the lenders specially in the case of the unsecured loans. With the government intervention, soon this down payment procedure was accepted as a norm and was implemented across the sector for all the loans one takes.
What would be the down payment on the loans is really a subjective matter and is more related to the risk associated with the lending. SBA is known to offer affordable and quick loans to the businesses looking for immediate funding. One of the programs under the SBA referred to as the 504 loan program offers loans into the commercial real estate sector along with equipment financing. These loans are secured against the real estate or the equipments and hence there are less chances of the customers defaulting on these loans. Still one can find that the loans require the applicants make a down payment of 10% on the loans.
Where To Get That Down Payment
This is often the most daunting question that the borrowers are faced with. If you are a small business owner and are looking for a loan to the tune of $100,000 , you will need to produce a down payment of $20,000. Arranging this amount can be tough at times but you will have to look for alternative sources to get the desired amount or take another loan if you think that you can clear it earlier.
Personal loan: These loans can be put to any use. If you have a god income and a good financial credibility of your own ,you can take a personal loan to pay for the down payment.
Sell off unneeded or unused assets – Any asset which is personal or business and is no longer of use for you can be sold off to arrange the funds you desire. This can be done easily with the several online sites which will help you find customers sitting at your home.
No matter what is the loan amount you are taking, try and arrange for the down payment first and show it to the lenders so that you get easy and quick approvals.