Down payment (buyer equity)
A down payment, or buyer equity, is the portion of a purchase price a buyer funds from their own resources rather than borrowing. Lenders require meaningful buyer equity because it aligns incentives — a buyer with nothing at risk has little reason to fight through a difficult first year.
How much is needed depends on the assets, the lender and the strength of the business, and there is no single Canadian rule. The practical constraint is usually debt service coverage rather than a fixed percentage: the down payment has to be large enough that the remaining debt can be serviced comfortably out of the business’s cash flow.
What lenders count
- Cash the buyer actually contributes, evidenced and seasoned rather than borrowed the week before
- Sometimes a documented family loan, if properly papered and subordinated
- Rarely a second mortgage on a personal home, which some lenders treat as reducing net worth rather than adding equity
Beyond the purchase price
Buyers routinely budget the down payment and forget everything around it — legal and accounting fees, the working capital the business needs on day one, licence transfers, and a reserve for the first slow months. Arriving at closing with no cushion left is one of the more common avoidable mistakes.
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Innovation, Science and Economic Development CanadaGovernmentCanada Small Business Financing Program
- 02Business Development Bank of CanadaIndustryHow to sell your business
- 03Treadstone LawLegal commentaryFinancing Options for First-Time Business Buyers in Ontario
- 04Treadstone LawLegal commentaryA First-Time Business Buyer's Guide to Buying in Ontario
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