Do you need funds to expand or buy an existing business but have no down payment? If YES, here are 2 guaranteed ways to finance your business with no money down. The recent economic downturn caused a lot of people to lose their jobs and businesses, and the worst thing about this terrible situation is that most people were not financially prepared for this unfortunate occurrence hence; their situations turned out for the worse with no employment, no savings and no business or solid investments to fall back on.
Such people are left with no other choice but to search for ways to finance a business. But how do you set up or buy a business without having money to do so? It is quite possible to fund a business without having money through what is known as ‘no money down’ business financing.
Table of Content
- What is NO Money Down?
- Why Risk Buying a Business With No Money Down?
- 2. Small Business Administration (SBA) Guaranteed Loans
What is NO Money Down?
No money down business financing is a system that allows you to get funding for your business, using other people’s money as capital. No-money down business financing is a difficult but possible way to buy an existing business or start a new business venture, even if you do not have a dime in your savings account.
This article is designed to make the process an easy one for you. However, it is always advisable for you to use this system of financing for buying existing businesses instead of starting a new business. Why?
Why Risk Buying a Business With No Money Down?
- When you buy an existing business, the product or service has already been developed and accepted in the market hence, the risks are reduced to an extent compared to when you are trying to introduce a new business or service in the market that you are unsure of its success or otherwise.
- The profitability of an existing business can also be easily determined, so that when you are considering buying into the business; you can easily predict to an extent, if it will be a worthwhile venture or not. You would also be able to forecast and plan your expenses.
- Break-even-: Some businesses run at a loss for a while when they start while some others only break-even for months. Buying an existing business means buying a business that has already gone through that developmental phase and is already making profits.
- Staffing-: Yet another benefit of buying an existing business is the advantage of having already trained staff to handle your business affairs on your behalf.
2 Ways to Finance a Business With No Money Down
So when you have decided on whether you want to buy a new business or an existing one, there are two major ‘no money down’ business financing opportunities;
- Seller financing
- Small Business Administration (SBA) guaranteed loans
1. Seller Financing
Seller financing is a kind of business financing arrangement where the seller offers you a loan to buy his business usually in form of installmental payments. He sells his business to you, then offers you a loan to buy it or allows you to pay an agreed price installmentally. This kind of business financing usually comes with interests on the loans or agreed price.
These are the steps to take to access seller financing:
The first thing to do is to determine the kind of business you would like to invest in. Is it farming, or IT related business, energy, fashion etc. Just determine what you want to do and make sure it is a business with potential.
Next, you should hire a professional who would broker the deal, help you search for opportunities and negotiate favorable prices.
Ensure that you have a carefully drafted business plan to be that would be able to convince investors of the viability of the business.
You can search for people who would be willing to borrow you some money to finance a business purchase. You can use such money to purchase other people’s businesses. If you work with a broker, he should be able to link you with one or two of such investors who would be interested in putting some money down for you to use in financing your business.
Search for sellers
Next, you should search for people who are interested in selling their businesses maybe due to expansion, relocation or retirement.
Gather information about the business
Find out as much as you can about the business you are trying to buy. Ask questions like what is the reason for sale? Level of profitability, customer base, existing debts and any information that would help you learn more about the business.
Talk to the seller about seller financing
It is usually better to instruct your broker to search for sellers with seller financing options. However, you never can tell, a seller may be able to agree to seller financing if you discuss with him. Just ensure that you show him that you have the necessary skills and experience to manage the business.
You could do that by providing him with proofs that you have managed businesses in the past and they were successful. It would also help to show them a list of people you would work with such as your bankers, legal advisers, and financial managers to prove that you are working with the right set of people.
Offer the seller attractive conditions
You should ensure that you offer the seller some conditions that would compel them to agree to your terms. For instance, you can offer him a position as a business consultant in the company for some months.
This would be of benefit to both you and the seller. As a consultant, he’ll be able to help you find your feet in the new business you would be able to tap from his wealth of experience and knowledge about the business. You should also offer him a good pay back period which should be short but you must ensure that the business would be able to make enough profits during the said period.
2. Small Business Administration (SBA) Guaranteed Loans
The SBA doesn’t offer loans for business financing but they help to guarantee loans borrowed from other sources, which make it easier for you to get loans to finance your business. Check the SBA website for the terms and conditions required for eligibility.
You can borrow up to $1.3 million to finance your business. You can also combine seller financing with SBA guaranteed loans to finance your business. To qualify, you must have a good credit report, pay taxes regularly and live in your own home.
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