How can you buy a business with no money
By Admin | 21 Sep, 2020
How can you buy a business with no money
Yes there is a possibility to buy a business with no money. If you are really passionate about the business then money should not stop you from getting it.
Who will sell a business without money?
Buying a business without money or selling a business without accepting money is nothing but seller financing. Seller financing or owner financing is a common term in real estate. This can also be applied in buy and sell of a business. In this type of transaction, the buyer instead of taking a loan from banks or financial institutions asks the seller to finance it. The payment to the seller is made in installments similar to that of a loan. The seller of a business finances the transaction.
Why do some opt for seller financing?
Seller financing in a deal happens when the loan is not approved by banks or financial institutions. It can be due to lack of credit history, not enough savings, earnings reported in the past etc.
Some points for buyer of business
- There will be down payment involved
Just like the financial institutions, sellers of business also demand an upfront downpayment for transfer of business. This may range somewhere between 20% to 30%. - Seller will check your background
Seller financing is nothing but a loan transaction with the involvement of the bank. What does a financier do while lending? Check the credit history. In seller financing transactions as well, the seller will check the credibility of the business by looking at his/ her past records, financials, savings etc. - Seller will have a say even after completion of transaction
When you opt for seller financing, the seller still has the skin in the game. He is yet to receive his amount for the sale transaction. There are some instances where the seller comes after the takeover transaction and advises the new buyers on running a business. This is also driven by the fact that they have emotions attached to the business. - Less business available for sale with seller financing
Not a lot of sellers are looking to finance the sale of their own business. Majority of the sellers look to sell a business so that they can retire. Due to unavailability and unwillingness to finance the sale there are very few opportunities available to buy from.
Some points for seller of business
- No upfront payment for sale
In seller financing, the buyer of business makes a down payment. This may not be ideal for a lot of sellers. - Tax implication
The tax on sale of business becomes due on the date of transfer of ownership from seller to buyer of business. This happens even when the monetary compensation is not received by the seller. It is always suggested to get help from tax consultants for better understanding of implications and tax outflow required. - Risk involved
The seller is not a financial institution at the end of the day. Hence, it becomes imperative for a seller to understand the risk involved in non-payment from when a buyer asks for seller financing. This also comes with a lot of paperwork.
Overall, the seller financing works when the seller is looking for a consistent retirement amount every month even after the sale of business. Buyers can also opt for seller financing at the time of deal and subsequently move to bank finance on qualifying the loan eligibility criteria. Buyer also needs to remember when they buy a business through seller financing they are also getting a mentor who may choose to guide them.
