To buy a business with no money is a challenging process, but it is possible. Seller financing, investor partnerships or securing government grants are all avenues to explore in acquiring a business with little to no personal investment.
However, these methods come with many risks, which are crucial to understand before making any decisions. In this guide, we explore the most common ways of buying a business with no money down and why utilising a tailored business loan may be a better, safer and more sustainable alternative.
Before you make any financial decisions, speak with a qualified financial advisor.
Strategies to buy a business with no money
Buying a business in the UK with no money is challenging but can be possible via creative financing methods and strategic negotiations.
Some common methods include:
1. Seller financing
This method involves the seller agreeing to finance part or all of the purchase price, so the buyer can pay in installments over time, often using profits generated by the business itself. While this requires an element of trust from the seller, it largely depends on their confidence in the business’s profitability and the buyer’s ability to manage it. This is one of the most common ways to purchase a business with no upfront capital, but requires careful negotiation of the terms and agreements – particularly in regard to payment schedule and interest rates.
2. Equity partnerships
By partnering with an investor, they can provide the necessary funds to purchase a business in exchange for equity. Investors can be anyone from a professional, to a family member or friend.
3. Crowdfunding
Raising funds from multiple investors or backers can be an effective option, particularly if the business has a meaningful purpose, compelling story, or strong growth potential.
4. Government grants
It is worth exploring existing government grants or loans that are designed to support entrepreneurship. These tend to be aligned towards specific regions or industries. Applications will likely require a solidly written business plan, with accurate financial projections.
5. Leveraging existing assets
If a business relies heavily on valuable assets such as equipment or property, you can use this as collateral when trying to secure a loan for the purchase.
6. Deferred payment
Similar to agreements in seller financing, a more specific deal can be reached where a seller is paid over time based on the business’s future earnings.
7. Business loans
While this isn’t strictly “no money”, lenders can approve loans with minimal personal investment if adequate collateral is provided or a strong potential for profitability can be demonstrated.
Risks of buying a business with no money
Seller financing is the most typical method of purchasing a business with no money in the UK, but it does come with some risks that you, the buyer, should be conscious of.
You can lose the business along with any payments you’ve made thus far if you fail to make payments when they are due. Agreements are often carefully written so that sellers have the right to reclaim the business in these cases, resulting in a significant financial loss for the buyer. Relative to traditional loans, seller financing has some fairly hefty penalties, including higher interest rates (which will increase the overall cost) and “balloon payments”, which is where a massive lump-sum payment is due at the conclusion of the term to pay for the remaining balance. Balloon payments can cause extreme financial duress if not planned for. When considering a business for purchase using seller financing, it is not uncommon for the buyer to overestimate the profitability of the business.
While revenues under the current owner appear favourable, it should be remembered that an ownership transfer can affect revenues on a short-term basis. The vendors can also impose other conditions on a sale, like remaining in the business or barring resale within a defined period – this can limit your freedom of action and affect longer-term business plans that you could have.
You are recommended to seek professional advice on preparing these agreements as there can be complex legal and tax implications. Not knowing the terms can put you in trouble if unexpected problems arise. Also, some sellers might require a personal guarantee by placing your home or other assets as collateral, which further increases your personal financial risk if the business doesn’t perform well.
Business loans – the recommended alternative
Getting a business loan to purchase a business offers a number of advantages over riskier methods like seller financing.
Here are the key advantages:
1. Lower interest rates and costs
At Rise Funding, we can help you find the right loan for your needs, with competitive interest rates (especially for secured loans) reducing the overall cost of acquisition. By contrast, seller financing typically comes with higher interest rates (often 8-10% or more) as sellers want to mitigate the risk they are assuming when providing you with financing. For “no money down” in particular, these often involve extremely high interest rates or other hidden costs.
2. Flexible loan types
At Rise Funding, we can guide you through various loan options, whether it be long-term loans or short-term loans, secured loans or unsecured loans. As we previously discussed in the risks section, when using seller financing, you are limited to whatever the seller is willing to offer, which may not align with your financial goals. No money down options rely on leveraged buyouts or other high-risk options that leave you with major problems if the business underperforms.
3. Full ownership & independence
Once your loan is approved, you will retain full ownership and control over the business without involving the seller or any restrictions on business activity, for example. These can include the previously discussed balloon payment or equity partnerships.
4. Predictable repayment terms
Rise Funding offers structured repayment plans with fixed monthly instalments over a set term (e.g. 5 years), making cash flow management easier when compared to unpredictable seller financing terms.
5. Faster access to funds
With Rise Funding, loans can be provided within as little as 24 hours after approval, ensuring quick access for time-sensitive acquisition deals. When negotiating seller financing, the process can be lengthy, often involving complex deal structures and the assumption of legal risk.
6. Reduced risk
Rise Funding offers loans with clear legal protections and manageable risk levels. Furthermore, timely repayment can help to build your business credit for any future borrowing needs. Defaulting on a seller financing agreement can land you in unwanted legal disputes over unclear terms.
How to get a business loan with Rise Funding
To get a business loan with Rise Funding, follow these steps:
1. Determine your requirements
Calculate how much funding you need to purchase the business, and any specific loan features you require like specific repayment terms, or a secured or unsecured loan.
2. Get in touch with us
Fill out our questionnaire here, or call our team on 0203 833 4369. Be ready to provide details about the business, and the purpose of your loan. We will use this information to match you with suitable lenders from our panel.
3. Prepare documentation
Gather essential documents like bank statements, profit and loss accounts, business plans and personal/business credit reports (if applicable).
4. Receive loan offer
Based on your requirements, we will shortlist lenders for you. Review their loan offers to check they are in alignment with your goals.
5. Accept an offer
After accepting the terms of an offer, funds can often be transferred to your account within 24 hours.
Conclusion
Buying a business with no money is possible, but it is a highly risky endeavour that you should approach with extreme caution. Before you take any financial risk, speak to a financial advisor. In many cases, there are far more feasible options to obtaining a business than you might think, so make sure you weigh up all your options first.
If you are looking for a loan to help fund your acquisition, Rise Funding can help you find the best option for you. Whether it’s a business loan or others, we’re here to help you make a decision with confidence. Contact us via the form below, or get an instant business quote through our online questionnaire.
