If you’ve ever wanted to start your own business, you probably know how tough it can be to find funding without putting down a lot of cash up front.
Is it possible to buy an existing business with no money?
Interestingly though some of the most successful entrepreneurs never had any actual money in their bank, relying solely on credit cards and personal loans to finance their businesses.
But while traditional sources of capital like banks and venture capitalists aren’t always open to small businesses, there are plenty of alternatives.
The good news is that each program has different requirements and eligibility criteria, so be sure to research each type carefully before applying.
And remember, you shouldn’t rely on any single source of capital. Explore different options to find the right one for you. Let’s look at some ways to buy a business without capital.
Ways To Buy An Existing Business – Find Owners That Want Out
An excellent first step is finding a business owner who wants out of their business quickly.
Start looking for business owners or principals who might be interested in selling, and start investigating local businesses, their owners, and the conditions of their business, including their industry and the market size.
Business brokers are great resources to use because they specialize in helping business owners sell their companies.
They know what it takes to sell a business and how much money they can expect to receive for it.
Another thing you can do is check to see whether there are any listings for the type of business you are thinking about buying.
For example, if you are looking to buy a restaurant, you could go online and check to see if there are any active restaurant listings on sites like Zillow, Trulia, Realtors.com, or Yelp.
You can also ask friends or family members who work in the field you plan to enter to see if anyone knows of someone who has recently sold their business.
Whatever business you decide to buy, you will need to access money from somewhere, so let’s look at financing options.
Seller Financing
Before seeking out seller financing, you need to know whether you can acquire a business without putting in any cash upfront.
If you’re looking to purchase a small business, there are a few things you’ll want to consider.
In most cases, sellers usually offer owner financing on the amount ranging from 20% to 50% on the remaining balance after you’ve paid off the initial down payment.
However, many lenders won’t allow owners to finance more than 80% of the total cost of acquisition.
Therefore, a business owner willing to offer 100% financing is highly likely to be someone who genuinely wants to sell their business and may not require the money right away.
They are probably more likely to provide 100% financing from an owner attempting to exit quickly rather than from one that isn’t performing well.
Leverage Buyouts
One way to finance a business without an upfront cash requirement is to do a small business ‘leveraged buyout.’
A ‘leveraged buyout’ is where you use the business’s assets — plus additional funds you borrow against those assets — to finance the purchase.
This type of financing is called a leveraged buyout because you are leveraging the asset base of the business to make the deal happen.
Leveraged buyouts can be structured as a “no-money-down” transaction if one condition is met: the business must be sold for less than the value of its total assets.
If you don’t meet this requirement, you’ll likely need to raise some capital somewhere else.
Find A Business Partner
If you are starting out in business without money it might be wise to seek out a business partner.
While owning a business requires hard work and dedication, having a partner can make things easier.
There are many different types of partnerships, including co-ownership, joint ventures, franchising, licensing, and consulting.
Trade Or Sell
You’ve probably heard people say that “you never know what you’ll find.” Well, you might just find yourself in possession of something that could help pay fund your new business.
If you’re thinking about starting up a small business, you might already have some things lying around that you can use to start earning some quick cash.
Maybe you have old furniture that you haven’t used in ages sitting around in your garage. Or maybe you have a hobby that you enjoy doing, like baking cakes.
If you love to bake, why not offer your skills to others? Or perhaps you have a skill set that you could put to good use.
For example, if you are great at sewing, you could open up a shop where you sew clothes for customers.
Or if you are skilled in woodworking, you could build custom pieces for clients. Whatever your talents, if you have something that you can sell, you can turn it into profit.
The key here is to look carefully at what you do have, and think creatively about ways to monetize those assets.
Other Options
Another way to go about purchasing a business is to use its own capital. This requires some planning, because the company needs to generate enough cash to fund the deal.
You’ll likely want to seek out a partner who can provide additional funds to help offset the risk involved. Another option is called a leveraged buyout (LBO).
Here, you borrow money against the value of the business’ assets, and use those borrowed funds to make the acquisition.
This strategy is most effective when the business is generating positive cash flow, and the company’s owners are willing to sell it for less than the value of its physical assets.
Conclusion
It’s not impossible to buy an existing business with no money. It just takes time, effort and persistence. If you have the right skills, experience and positive mindset you’ll be profiting in no time.
