More Entrepreneurs Are Buying a Business with No Money

Saturday, 10 March 2012 Andy Anderson

If you’ve been thinking about starting a business or expanding your current venture, you will be pleased to know that obtaining financing for a business can be quite simple.  Some say it is much easier to get this money when you are buying an existing business than starting a new one; in fact many people have been buying a business with no money.  This may seem impossible, especially with banks tightening their guidelines for granting business loans, but there are plenty of ways to work around that.

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.

Seller-Assisted Financing

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.

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.

Read 7784 times Last modified on Sunday, 25 November 2012

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