How To Buy A Business with $0 Down Using Creative Financing.

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So now we understand the why, let’s consider the how!

Here is some creative ways to buy a business with no money down.

1. Seller Financing

This is the most common method. Instead of paying the full price upfront, you finance the company from the owner, by using the monthly cash flow generated from the business to do so.

Valuation Considerations
Businesses are typically valued at a multiple of their EBITDA. For small businesses, the multiple can range from 2x to 5x EBITDA, depending on factors like industry, growth potential, and risk.

• Example: If a business generates $150,000 in EBITDA per year and sells at a 3x multiple, the total purchase price would be $450,000.

• Financing Example:

  Suppose the business generates $150,000 EBITDA per year. You negotiate to pay the seller 50% of EBITDA ($75,000 per year) over 6 years. That means:

  • Total payments: $450,000 (purchase price)

  • Annual payment: $75,000 (50% of EBITDA)

  • Monthly payment: $6,250

• Why It Works: The seller gets a steady income stream, and you don’t need a bank loan.

• Pro Tip: Offer a slightly higher price if they agree to better terms (like lower interest or deferred payments). You can also negotiate a balloon payment—lower payments upfront with a larger lump sum at the end of the term.

2. Profit Sharing Agreements

Here is how it works….

You only pay the seller if the business makes money.

This lowers your risk and keeps the current owner invested in the company’s success.

• Example: Instead of paying $500,000 upfront, you agree to pay 20% of net profits for five years.

• Why It Works: The seller has skin in the game and gets paid as the business grows. There is no worry of the seller starting again and poaching clients, they stay invested with you until the debt is settled.

• The key difference from seller financing is that the debt is repaid as a percentage of profits rather than a fixed amount, and the seller remains actively involved and exposed to risk.

3. Put Up Asset You Don’t Own As Collateral

This is probably one for the US readers, as I suspect this would be difficult in the UK and parts of Europe.

If the business has valuable assets, like equipment, inventory, or real estate, you can use it to get a loan instead of putting up your own money.

This can be done directly through a lender or through the likes of SBA loans:

• Example: A manufacturing business owns $300,000 worth of equipment. You secure a loan using that as collateral to fund the purchase.

• Why It Works: Lenders are more likely to finance tangible assets.

• Difference from SBA Loans: SBA loans also allow you to leverage business assets as collateral, but they come with longer repayment terms, lower interest rates, and government guarantees, making them less risky for lenders.

3. Find An Investor Or Business Partner

This is an obvious one. You don’t have the money, but some else does, put the two together and get the ball rolling.

Debt is cheaper than equity typically, however equity carries less front end risk to you as it is not your money.

That’s a wrap!

Let me know what you think about this weeks copy ⬇️ 

See you next week

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