Can You Purchase a Business With No Money Down
Millions of aspiring entrepreneurs have a dream of being in business for themselves. In today’s economy, however, it can be difficult to put aside enough money to get started. In general, it is better to buy into an existing business rather than start one from scratch. Here are a few reasons why:
- Existing businesses have built-in cashflow and revenues;
- Existing businesses have an established client/customer base;
- Financiers see existing businesses as much safer investments than startups.
The challenge of course with buying an established business is that they tend to require a much larger investment than a business you start on your own. And for many, the price tag is way out of reach, unless they are able to finance most (or all) of the purchase price.
Here are some possible sources for financing the purchase of a business:
The Small Business Administration (SBA): The SBA 7a (Advantage Loan) program provides a strong incentive for a bank to lend to a buyer by guaranteeing 75% of the purchase price of the business. To be eligible, you must have a for-profit business that operates in the United States. Certain businesses are ineligible for the SBA 7a program; including banks, finance companies, payday loan providers, land developers, life insurance companies, businesses involved in illegal activities, and many others. It is also very helpful to have some type of business experience to become approved.
Seller Financing: Many sellers are willing to finance at least a portion of the sale of their business. This often makes sense for them, because it provides a relatively safe ongoing revenue stream. In most cases, the seller built the business, so they typically feel good about its chances of remaining viable. If the seller finances, he/she may also be incentivized to provide ongoing support/consultation or even work for the business on a limited basis.
Alternative Lending Sources: There are several lending sources that do not involve traditional banks or seller financing. For example, peer-to-peer lending networks provide funding for business startups or purchases, as well as working capital loans for ongoing business operations. Other potential lending sources may include:
- Friends and Family
- Local Investors
- Home Equity Lines of Credit
- Loans against your Retirement Account
Combination of Sources: Using a combination of financing sources, it may be possible to purchase a business without using any of your own money. For example, through an SBA 7a loan, you can obtain 75% of the money you need. But the other 25% does not need to be your money; it can come from family or friends, or even from the seller.
So, is it possible to purchase a business with no money down? Yes, but it does require some creativity. The best scenario is to come in with some of your own capital so you are not 100% leveraged. But if the business is thriving and the numbers work, a no-money down purchase can still provide enough net revenue for you to make a good living.
To ensure a positive outcome, you need to find the business that is right for you. The best place to start is by speaking with a reputable business intermediary who can match you with the business that fits your passion, skills and budget. This way, you will be in a business you truly enjoy your new endeavor and create long-term success.