Business Purchase Finance + Down Payment Funding: Where to Start

You've found the perfect opportunity: an established business with a customer base already in place in a field you're passionate about. And it's for sale! But you're not sure if you can afford it.

What if we told you that it could be possible to have the entire purchase amount financed with little or no down payment required? It sounds too good to be true, but in certain instances, it is possible. Here's how.

100% Seller Financing

These days, it's commonplace for sellers to provide financing for a portion of the purchase price of the business. From time to time, you may come across a business owner who really needs to sell in a hurry. A business owner, under those circumstances, may be open to offering financing terms for the entire purchase amount.

Perhaps, the owner has decided it's time to retire and now doesn't want to wait a long time to start enjoying the retirement years. Look to buy a business that’s been available for sale for a long time, as these are the ones that are more likely to have an owner who is more eager to get it sold.

A word of caution: be sure to do your due diligence on the business and its current owner to be certain of its viability. While it isn't always the case, an owner who is willing to offer 100% financing may have doubts about its future success.

Other Business Purchase Finance Options

If 100% seller financing is not possible, you'll need to find another financing solution. In our previous blog entitled Buying a Business Financing: Where To Start, we covered some initial steps to take before seeking financing. Once those are done, you can apply for a bank or SBA loan. An SBA loan can cover up to 85% of a purchase price below $150,000 and 75% for those priced higher.

If you have seller financing in place for a portion of the selling price, your chances of being approved by a bank or another financial institution are much higher.

Down Payment Funding

If you have partial seller financing, a bank loan, or a combination of the two in place to buy a business, chances are it won't cover the total purchase price. If that's the case, you'll need to come up with a down payment to cover the remaining balance. If you don't have the cash readily available to cover the down payment, here are a few possible solutions that can help you get the funds to do it.

• Access your retirement savings: through a rollover for business startups, you may be able to access funds in your 401(k) or traditional IRA without having to pay withdrawal fees for income taxes. To qualify, you need to have a minimum of $50,000 in the eligible retirement account.
• Refinance your mortgage: if the value of your home is high enough and you have sufficient equity in it, refinancing your mortgage could generate the cash you need for the down payment. Alternatively, you can seek a home equity loan that uses your house as collateral against the amount borrowed.
• Leveraging the business' assets: through the escrow company handling the sale and refinancing of the business, it may be possible to refinance the company's assets upon the closing of the sale, providing they are sufficiently valued.

Other options to consider include finding a partner or investor, selling some of your own assets like stocks, jewelry, or cars, and using credit cards or a personal loan.