You Can Buy a Business Without Bank Financing

People wishing to buy a business are often put off by concerns about financing. They don’t have the bucks to pay cash, SBA loans are no longer as available as water at their favorite restaurant, the banks aren’t too friendly in the lending department, the equity in their home has evaporated, and there no rich uncles around to bankroll their dream purchase.

Guess what? People who want to sell their businesses understand that. In fact, a good business broker will explain that very common buyer’s limitation upfront to his seller, before he even lists that business. The business broker will encourage the seller to offer terms-in short, to carry a note for part of the purchase.

And most of them will. I am a business broker in Las Vegas and the thumping majority of my listings have sellers willing to lug some paper on the back end of a sale.

The key to a successful deal is often the nature of the agreement–more particularly, the downpayment and the terms–rather than the selling price. Most people looking to buy a business want to get their downpayment back out of the first year’s profits. Conversely, most people selling their businesses want a downpayment large enough (often around 50%) that the buyer has sunk sufficient cash into the sale to insure that he will do everything possible to keep the business successful enough to pay off the balance. Most deals in which paper is carried accomplish that.

Let’s use an example. Say a service business does a gross of a $140K a year, with a net profit at around $70K. And the seller of the business wants $135K for it. Often the published terms (those stated by the seller in the listing) will go like this: $70K down, remaining over 24 months at 8% interest. Get it? The buyer of the business gets his downpayment back in profits that first year and can then spread out the balance for the next two years.

Read my lips: You don’t have to offer either the price or the terms the seller of the business requests. You maybe want to offer $120K for this enterprise, at $60K down and the rest over 36 months. All things being equal, it is likely a motivated buyer would accept that offer to buy her business.

But what if the buyer wants all cash? If the price is low-under $100k-it may not be much of a problem for most buyers. But even here, you will find business sellers willing to carry small notes.

Whatever you do when buying a business, do not be put off by an all-cash request. If that business has been perched on the listing system for awhile getting limited interest, the seller of the business may well swallow hard and accept a sale with terms.

Business buyers listen up: Don’t be put off by selling prices and fears over rustling up the money. That is not the place to start. First, find a business that you find attractive-financially and otherwise. Just look for something that catches your eye. Once you hit it, then look at price and terms. It may be affordable right there. In any case, if you have a broker of any value representing you, talk it over with him as frankly as you would present a matter to your lawyer. He may well be able to help you put together a reasonable offer. It might be conventional or even rather creative. It doesn’t matter. After perhaps a little dickering back and forth, you may get a deal.

And if you do, that’s all that matters. You have taken the first step toward realizing the dream of owning your own business.