How to buy an existing business with no money

Owning a business is a dream for many Americans, but finding the money to start or buy one can be challenging. While you can bootstrap a startup, buying an existing business often requires a large sum of cash. Fortunately, there are ways to buy a business even if you're short on cash. Here's how to buy an existing business with no money that are available to everyone.

Reasons why a business owner may want to sell

Even when a business is successful or has a strong reputation, the owner may be willing to sell. There are many reasons why a business owner may be willing to sell their business to you. By understanding these reasons, you'll know the types of businesses to target with your buying pitch.

• Retirement. Even if the business owner loves their business, they may want to travel more, spend time with family, or not have to work as much. As they approach retirement age, many business owners look to sell their business if their children are not interested or able to take it over.
• Divorce. When a divorce occurs, the couple may look to sell the business to untangle their finances or face the realization that they cannot run it by themselves. They may also need the money to finance their divorce settlement.
• Illness. Long-term illness can impact the owner's ability to operate their business in the long term, so they may be looking to sell while it is still viable. Selling may also fund their retirement and healthcare if they cannot work again or need to do less strenuous work.
• Unwilling to adapt. Many businesses get left behind because the owner is unwilling to adapt to a changing marketplace or regulatory environment. These businesses offer a tremendous opportunity to investors who are willing to be flexible or those with updated skills who can pivot the direction of the business.
• Bad location. A good business may perform poorly when it's in a bad location. Savvy investors may be able to find a better spot for the business to relocate where it can meet the needs of the customers in that area.
• Changing target audience. Businesses that performed well in the past may need to attract a different target audience to continue to thrive in the long term. Those with the education and experience of appealing to new audiences may be able to reinvigorate the business by updating marketing or packaging, launching new products, or making tweaks to existing products.

Types of existing businesses you can buy

There are many different options when looking to buy an existing business. Here are a few options to consider.

• Your current employer. Most employees don't know the current finances or the personal situation of their bosses. Yet, your current employer may offer an excellent opportunity to become a business owner. They may be in one of the categories above and looking to sell but haven't shared that information with employees for fear that they'll quit.
• Businesses in your current field. Your professional experience may present opportunities to buy a competing business. While working, you may uncover competitors looking to sell or who are underperforming. With your experience and hard work, that business may flourish.
• Turn a hobby into a business. Even if you don't have professional experience in certain industries, maybe your hobby is an option. Consider turning your passion into something more lucrative. Using your experience in the hobby as a consumer may allow you to buy a business you've been a customer of for years. You know what customers want, and you know what that business is lacking from a customer's point of view.
• Franchises. Franchises offer well-known brands and an established process that makes it simple for inexperienced business owners to be successful. If you want to know how to purchase a franchise with no money, visit the brand's website to investigate how they work with new owners.

How to buy an existing business with no money

Many aspiring entrepreneurs never realize their dream because they don't know how to buy an existing business with no money. Luckily, there are many financing options available to meet the needs of borrowers. Here are a few of the most common ways to buy an existing business or a franchise, even when you don't have the money.

SBA Loan

The Small Business Administration (SBA) is a government agency that backs loans for entrepreneurs to buy businesses and grow them. While the SBA doesn't lend money itself, it guarantees SBA loans issued by banks, credit unions, and other lenders. These guarantees allow lenders to approve borrowers who may not qualify for traditional bank loans. One of the best SBA loans to buy an existing business with no money is the SBA 7(a) loan, which offers loans up to a $5 million purchase price.

Traditional bank loan

Traditional bank loans typically offer financing to existing business owners who have been in business for at least two years. However, some banks are willing to offer loans to purchase a business based on its cash flow, your experience and other factors. Contact your local bank or credit union to discuss whether they offer this type of financing.

Seller financing

Owners who do not need all the money from selling their business right away may be willing to provide seller financing. This is also a great option when the business owner wants a stream of income or has difficulty finding someone willing to meet their preferred purchase price. Seller financing allows purchasers to buy the business without the underwriting of traditional bank loans or when they have less-than-perfect credit or hard-to-prove income that a traditional bank may require.

Franchisor financing

One of the benefits of buying a franchise is that some brands offer financing to franchisees. This makes it easier to get qualified for the purchase and they often offer low or no-money-down financing options. If you want to learn how to purchase a franchise with no money, contact the brand directly to discuss options or speak with a local franchise owner about their experience.

401(k) loan

Homes and retirement accounts are often the largest assets a person owns. As these assets increase in value, they become attractive options to fund the purchase of an existing business. For those who plan to continue working at their current job, a 401(k) loan is a good option because it doesn't require underwriting approval. However, if you leave the company, the loan becomes due immediately. If you don't pay it back, the unpaid balance is treated as a withdrawal, which can trigger penalties and a large income tax obligation.

Home equity

Borrowing against your home's equity is another appealing option. As your home value increases and your mortgage is paid down, your equity grows. Banks offer home equity loans and HELOCs, but they require monthly payments that can be financially difficult when starting a business. A home equity investment doesn't require proof of income, and there are no monthly payments, which allows you to focus your cash flow on growing the business and meeting your goals.

Venture capitalists & angel investors

Venture capitalists and angel investors may be willing to finance the purchase of an existing business based on its business valuation potential. These investors typically seek out larger deals with the potential to grow quickly and allow for an exit event within 3 to 5 years. While this form of financing may not be suitable for a small business, if you have an opportunity that can make it big, then these investors may be the right choice.

Peer-to-peer lending

Peer-to-peer lending sites allow micro-investments from a group of investors to pool together to fund the purchase of your business. These loans are repaid over time, with interest rates based on your loan amount, repayment period, credit score, and other factors.

Crowdfunding

Crowdfunding is similar to peer-to-peer lending, but the money typically comes from prospective customers, family, friends, and others. With this type of financing, you don't have to repay the money. Instead, your backers are prepaying for goods and services in the future should you be able to buy the business and deliver on your promises. The downside with these platforms is that you may not get any of the money if you cannot reach your fundraising goal. So, make sure to perform your due diligence and prepare a business plan that details exactly how much you need to make your business successful.

Frequently asked questions

Can you finance a business with no money down?

Yes, there are many different financing options to buy a business with no money required upfront. Seller-financing is a common method that allows someone to buy a business based on the future cash flows of the business, rather than a lump sum of money upfront.

Is it a good idea to buy an existing business?

Buying an existing business allows the buyer to capitalize on the owner's brand and reputation, as well as their existing location, employees, equipment, and processes. The existing business also has a built-in customer base that provides revenue immediately.

How much should you put down when buying a business?

The down payment to buy a business can vary significantly. A typical down payment is 20% to 30% of the purchase price, but everything is negotiable when buying a business. Try to keep your down payment as low as possible so that you have adequate reserves to fund the business as you take over.

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Final thoughts

Buying a business doesn't require having huge sums of money in the bank. There are many ways you can buy a business with no money, including SBA loans, seller financing, tapping your 401(k), or using your home's equity. Before purchasing an existing business or franchise, perform due diligence by reviewing the company's financial statements, preparing a business plan, and having contingencies in place in case the business slows as you learn how to run it.

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