Why are Entrepreneurs buying businesses that do not have money

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Why are Entrepreneurs buying businesses that do not have money

In recent year it has become easier to get business financing. Therefore if you were thinking about starting or expanding you business now would be a good time. There are some people who think that getting money for a business that already exists is much easier than getting financing for a new one. This is why many people have been buying businesses with no money. You may think that this is impossible however there are ways to do it.

When it comes to structuring a business deal you can always learn something new. People who are not able to get any help through traditional money lenders have learned a great deal about how to guy a business with no money or with very little. If you are not prepared to put down your personal assets as collateral then you will not be granted a loan and even if you were to the terms are not usually business friendly.

 What is Seller-assisted financing?

Right now more than ever before the majority of acquisitions of businesses involve some percentage of sellers financing. It is estimated that 80% of small businesses will get some financing from their owner usually adding 50% or less of the purchase price. By doing this the seller shows the viability of the business. It appears less of a risk to potential buyers because they see that the seller is taking on the risks themselves. Therefore the buyers feel more at ease with an arrangement like this since it reinforces the claims that the seller is making.

 Financing and the Small Business Association (SBA)

Going against popular belief the SBA will not lend money to potential business buyers. They will however guarantee loans if you want to purchase a small business. They can guarantee loans of up to 51.3 million and maybe more if it includes property. The terns of the loans are usually pretty favourable and they can last for about 10 years. The only hang up is that you will need at least 25% equity in your house to fully use it as collateral. It is unfortunate but most small business purchases do not meet the guidelines set out by the SBA since it uses information from the weakest of your last two or three tax returns.

Therefore buying a business without money might not be possibly for all however if you can purchase an established business and get 50 seller financing and take advantage of a fully collateralize SBA loan guarantee then it might be possible to buy the business without making a down payment.