No matter how experienced you are with structuring a business deal, there is always something new to be learned. Entrepreneurs who have been forced to go without the help of a traditional lender have learned a lot about buying a business with no money, or only a little money down. Gone are the days when the bank down the street will welcome a newly minted MBA with open arms and an open mind. Unless you are prepared to collateralize the loan with personal liquid assets, they are not going to grant a loan, and even if they did the terms they offer are not as business-friendly as they sound.
More so than ever, the vast majority of business acquisitions involve some degree of seller financing. In fact, with small businesses it is estimated that more than 80 percent will get some form of financial aid from the current owner, often adding up to 50 percent of the purchase price.
By providing financing, the seller validates the potential and viability of the business, making it appear less risky to the buyer. By funding a portion of the acquisition, owners often get a higher selling price because the buyer recognizes that the seller is also taking a risk with the transaction.
Buyers feel more comfortable with this arrangement because it serves as reinforcement that the seller’s claims about the business were true.
Seller-assisted financing is only a part of the equation. If it were that easy, everyone would be doing it, but it is possible to by a decent business with a combination of seller-assisted financing and a bank loan.
If the business makes sense and it’s big enough to warrant full financing, it is possible to get in without spending a dime of your own money. With lending rates at historic lows, there has never been a better time to finance a business.
One word of caution to those who want to buy and sell businesses quickly using this method – many lenders will expect the owner to stay in the business for a certain length of time and prove their ability to run a company profitably.
Sometimes the greatest challenge in buying a business with no money is finding one that warrants the financing. In order to get that kind of money in a bank loan, you will need to convince the lenders that the concept is profitable and that you have the skills to run it.
Small Business Association (SBA) Financing
Contrary to popular belief, the SBA does not lend money to people who want to buy a business. However, it does guarantee loans for small business acquisitions. The guaranteed loans offer up to $1.3 million and possibly more if the deal includes real estate. Terms are usually favorable and up to ten years for most traditional loans, but you may need at least 25 percent equity on your home in order to fully collateralize the loan. Unfortunately, most small business acquisitions do not meet the SBA guidelines because the review uses the weakest of your past two or three tax returns.
Buying a business with no money may not be a possibility for everyone, but if you are able to purchase an existing business, get 50 percent seller financing and fully collateralize an SBA-guaranteed loan, it’s possible to take ownership without a major down payment.
Buying a Business with No Money
Financing a business is not always as simple as going to a bank. Government loans, suppliers, investor financing and joint ventures are some other ways to find the money.
You can choose one of these methods or use a combination of several different ones as needed. Most of them are relatively quick to turn around, and much easier to obtain than one might expect.
The best way to search for a business is to look online at a Business for Sale by Owner directory or consult with an experienced business broker.
With the right combination of seller-assisted financing, bank loans, government loans and venture capital, you can always find the money for a bright idea. It won’t necessarily be fully financed by a bank, but buying a business with no money down is a real possibility.