How to Buy A Business With No Money: 5 Myths Debunked

Buying a business with no money would be possible in an ideal world, but in reality, it is a myth. Instead, you can purchase a business with minimum upfront costs.

Seller financing and business acquisition loans are some of these financing options. Still, you need proof of funds or collateral and meet other requirements that can give you leverage to negotiate the funding.

In this article, you'll find common misconceptions about purchasing a business with no money and alternatives that will help you embark on a new business venture.

Related: Where To Find a Business To Buy? 8 Marketplaces To Explore

Can you really buy a business with no money?

Though it sounds like a dream, unfortunately, it isn't possible. Like they say: "no money down" doesn't mean "no money involved." However, you don't need to cover the full amount of the asking price with your own money, and most of the time, this is what the phrase "you can buy a business without money" refers to.

With Boopos, you can get a loan to acquire an existing business that's profitable, but you need to have at least 30% of the asking price, proof of funds of US $20,000, and a good credit score above 670.

Myth 1: You can buy a business with no money

FALSE. So far, there isn't a business acquisition model in which the buyer doesn't have to put at least some money upfront or pay associated costs. Even with alternative lending options, you must prove you can repay the loan eventually.

Instead of buying a business with no money, you can make a deal through seller financing, a model where the seller provides a loan to the buyer to acquire the business. The former owners get paid over time. Another option is a sweat equity deal, in which the potential buyer has to do some leg work to achieve business growth and eventually receive shares or profits.

Myth 2: Seller financing is the same as buying a business with no money

FALSE. When buyers don't have money to buy the business, they can acquire it through a seller financing deal with the current owner, but they need to repay the borrowed amount over time.

But even if it sounds like a hassle-free option to acquire an existing business, the negotiation phase is challenging, and setting the right terms for the deal is key.

Myth 3: Your credit score doesn't matter when buying a business

FALSE. When it comes to borrowing money, your credit score will give lenders a general idea of how you manage your debts and if you can pay them. A low score will flag you as a high-risk borrower.

When asking for money to buy a business, it's even more important because it will play a role in the terms and conditions of your loan, the amount you receive, interest, and other factors.

Myth 4: You can only buy a business with a traditional business loan

FALSE. At some point, traditional bank loans were the only (formal) financing option for purchasing a business.

Nowadays, investors have more alternatives. Financing options like the one Boopos offer, give buyers flexible and fast business loans. Additionally, you can get help with the due diligence for your new business venture to ensure it's a good deal.

Myth 5: All businesses are equal opportunities

FALSE. Businesses require a different amount of upfront capital depending on the industry, the profits, and growth opportunities, among other factors.

For example, acquiring an online business like a SaaS or an e-commerce store differs from a brick-and-mortar company due to the operational structures and associated costs.

A regular store must invest in a lease, inventory, staff, and distribution channels. If they want to expand, they would have to cover all those extra expenses to be able to launch in a new place. On the other hand, an online business can forget almost all these costs because it isn't tied to one location. Instead, the investment goes to marketing or technology.

Discover: How to find business investment opportunities

How to buy a business with (almost) no money: 5 ways

Even if there are no real options for buying a business with no money, there are several ways to acquire an existing business where you can minimize the upfront capital.

Here are some of the options:

1. Seller financing

When a buyer purchases a business through seller financing, the current business owner lends money to the buyer to acquire the venture and repay the seller under previously established terms and conditions. Choosing this funding option allows business buyers to go through a more flexible process, requiring less documentation (compared to traditional bank loans).

Seller financing has several steps in which both parties discuss the potential deal, review the payment terms, consider potential collateral, and finally go over less-than-ideal scenarios to agree on preventive measures.

Sellers who agree on this funding option can benefit from spreading out their resulting taxes from the sale through the years, which translates into a constant cash flow over time. Additionally, seller financing might be the right fit for small businesses and start-ups that are constantly adapting and evolving.

2. Partnerships

Strategic partnerships are one alternative financing option for buying a business without money. By choosing this option, potential buyers work on the venture's growth by focusing on specific capabilities, business areas, or places where there's room for improvement or creating a bundle that includes both parties' products or services.

In a business partnership, the business owner and buyer are both in it, working to improve the venture's results. Before negotiating a partnership, be sure that you and the other party are on the same boat regarding goals, business perspectives, investing efforts, contributions, long-term plans, revenue shares, and more.

3. Leveraged buyout (LBO)

A leveraged buyout happens when a business is mostly acquired through debt. The buyer (who is usually a private equity firm) borrows money from several lenders and uses a small amount of their own cash to complete the transaction. During the transaction, the buyer issues bonds on the assets of both businesses (theirs and the newly purchased). At the end of the day, the assets of the acquired venture will work as collateral for the loan deals.

The LBO alternative is mostly used to acquire stable, profitable businesses where buyers want to see a predictable cash flow.

4. Earnouts

Earnouts are an alternate type of business loan in which a contractual provision states that the seller can get extra remuneration if the business reaches previously established goals (such as earnings or gross sales). When the purchase price exceeds the buyer's budget, the earnout can solve the transaction.

Earnouts allow buyers to cover a part of the asking price in money upfront, and the rest will be settled by the venture's future results. At the same time, the business owner can reap the rewards of future growth.

The payouts will be discussed during the negotiation process and will be settled according to several factors like net income, revenue, and business size, so both parties agree on an amount.

With this type of deal, the business owner will be tied to the venture for more time, which can cause them to want to stay in the loop with what's happening in the business. Additionally, unless the sales increase significantly, sellers won't make much money from transferring ownership.

5. Sweat Equity

Are you still wondering how to buy a business with no money? Then sweat equity might be the right call for you.

Sweat equity is one of the alternative funding options that works well with small businesses. Using this option to acquire a business means that you, as an investor, will have to contribute with time, contacts, knowledge, or even physical labor. This acquisition model is common in the real estate and construction industries and even startups.

In startups, sweat equity can mean that the founder and employees accept below-market compensation in exchange for company shares. Though there is a high risk of potential business failure, the reward can be higher if the company succeeds.

Read: What is cash equity?

Buy a business with an acquisition loan

Although you can get creative and find ways to buy a business without money, going for alternatives that make it easier for you to get a loan is an option when you've run out of ideas. Feel free to contact our expertes to get advice.

Boopos acquisition loans allow you to not only get financing to buy an existing business with a few requirements, but we also make sure that the deal you get is fair and that you invest in profitable businesses. Our experts have reviewed all the deals listed on our platform. Become a business owner with Boopos!