Why down payment matters to a first-time founder
The upfront amount determines how much must be financed and can affect approval, interest cost and cash available for the business. A larger payment usually reduces borrowing but may drain working capital. Founders should compare the total financing cost and liquidity impact, not judge affordability from the monthly instalment alone.
Examples of down payment
A company buys a ₦60 million van with a 20% down payment. It pays ₦12 million upfront and finances ₦48 million, excluding fees and taxes. Paying 30% would cut the loan to ₦42 million, but the extra ₦6 million might leave too little cash for insurance, stock and the first month’s wages.
Common misunderstanding
A down payment is not always the same as a refundable deposit. It normally forms part of the purchase price and reduces the amount financed, while a deposit may secure a transaction and be refundable or forfeitable under the contract. Read the agreement for timing, ownership and cancellation consequences.
When to use it
Use it when comparing financed purchases such as equipment, vehicles or property. Model the upfront payment, fees, interest, instalments and remaining cash under a weak-sales scenario. Confirm whether the payment is refundable and when ownership transfers. Avoid using payroll or tax money simply to qualify for a larger purchase.