Trillions of dollars of profitable boomer businesses are going up for sale.
Buying one is your best ticket out of the rat race.
But what if you don’t have enough $$ saved up?
No problem!
In this thread I will share 5 ways you can buy a business w/ minimal cash down.
👇🧵
Buying one is your best ticket out of the rat race.
But what if you don’t have enough $$ saved up?
No problem!
In this thread I will share 5 ways you can buy a business w/ minimal cash down.
👇🧵
First an example so we have something to work from.
Actual listing on BizBuySell
SDE almost $400K
Asking price $1.5M
SBA financing requires 10% or ~$150K down
Let’s see how we can get it done if we don’t have the $150K in savings.
Actual listing on BizBuySell
SDE almost $400K
Asking price $1.5M
SBA financing requires 10% or ~$150K down
Let’s see how we can get it done if we don’t have the $150K in savings.
1/ Full stand-by note
SBA rules allow the seller to loan you up to half of the $150K down.
It’s called using a Full-Standby Note and not all banks allow it.
No payments allowed until you pay off SBA loan.
So, can be less appealing to seller.
SBA rules allow the seller to loan you up to half of the $150K down.
It’s called using a Full-Standby Note and not all banks allow it.
No payments allowed until you pay off SBA loan.
So, can be less appealing to seller.
Ways to make it more appealing:
• Offer full price on the deal
• Offer interest for full-standby note
• Offer to pay off the note within 6 months of when it goes out of full standby
-> out of pocket: $75K needed (plus diligence and other deal expenses)
• Offer full price on the deal
• Offer interest for full-standby note
• Offer to pay off the note within 6 months of when it goes out of full standby
-> out of pocket: $75K needed (plus diligence and other deal expenses)
2/ Seller financing
Listing says “seller financing available."
Sometimes sellers are willing to finance a large portion of the deal (or even 100% in rare occasions).
Note: often this is dependent upon whether they like you or not.
Listing says “seller financing available."
Sometimes sellers are willing to finance a large portion of the deal (or even 100% in rare occasions).
Note: often this is dependent upon whether they like you or not.
To increase your chances:
• establish good relationship before asking for large seller financing
• demonstrate you're serious buyer
• show you're a capable operator
• offer a down payment
-> out of pocket: $20K? + diligence costs
• establish good relationship before asking for large seller financing
• demonstrate you're serious buyer
• show you're a capable operator
• offer a down payment
-> out of pocket: $20K? + diligence costs
3/ Revenue share
Not as common as seller financing.
Used to buy an otherwise unsellable company (eg. entirely dependent on seller for example).
Let's use our example but pretend that turns out it's completely not sellable.
Here's how we might structure a revenue share:
Not as common as seller financing.
Used to buy an otherwise unsellable company (eg. entirely dependent on seller for example).
Let's use our example but pretend that turns out it's completely not sellable.
Here's how we might structure a revenue share:
• $10k down
• 15% of profit in year 1
• 10% of rev in years 2-5
Seller gets a stream of income of (assuming no growth):
• $60K in year 1
• $40K in years 2-5
= $190K for their business (plus upside) instead of just closing down
-> out of pocket: $10K plus diligence costs
• 15% of profit in year 1
• 10% of rev in years 2-5
Seller gets a stream of income of (assuming no growth):
• $60K in year 1
• $40K in years 2-5
= $190K for their business (plus upside) instead of just closing down
-> out of pocket: $10K plus diligence costs
4/ ROBS
If you have money in a 401K or IRA you can use it to fund your purchase.
Complicated process w/ expensive setup but you can potentially buy a business with very minimal cash.
-> out of pocket: ROBS setup fee (~$5k) + diligence costs.
If you have money in a 401K or IRA you can use it to fund your purchase.
Complicated process w/ expensive setup but you can potentially buy a business with very minimal cash.
-> out of pocket: ROBS setup fee (~$5k) + diligence costs.
5/ Investors
• Can combine with other funding like SBA loan
• Family/friends or other people in your network
• Get good legal advice for SEC and state law compliance
-> out of pocket: $10-20K or less if investors are willing to cover deal costs
• Can combine with other funding like SBA loan
• Family/friends or other people in your network
• Get good legal advice for SEC and state law compliance
-> out of pocket: $10-20K or less if investors are willing to cover deal costs
Summary:
Here are five easy ways to buy a business even when you don’t have enough cash saved up:
1. Full Standby Note
2. Seller Financing
3. Revenue Share
4. ROBS
5. Bring your own investors
Here are five easy ways to buy a business even when you don’t have enough cash saved up:
1. Full Standby Note
2. Seller Financing
3. Revenue Share
4. ROBS
5. Bring your own investors
These threads take lots of time to write. If you liked it, please consider RT ing the first Tweet.
It helps me & helps you spread good business buying knowledge.
PS, Follow me (@lawyer4SMBs) for more actionable intel to help you buy your first (or next) business.
It helps me & helps you spread good business buying knowledge.
PS, Follow me (@lawyer4SMBs) for more actionable intel to help you buy your first (or next) business.
For more info on this, I'd go to the source: @SBA_Matthias and @FullStandbyHat.
Here's a great thread by Matthias with more details:
Here's a great thread by Matthias with more details:
Loading suggestions...