5 Options For Financing To Purchase An Existing Business With No Money

0
purchase an existing business

The title says it all and it is sure to grab your attention at the first look. In today’s market scenario where the employment rate is considerably low, there are many talented individuals who have to sit idle at home despite being a certified professional. Moreover, the professionals who have managed to bag a lucrative job are constantly feared up of losing their job due to poor market conditions. This is the main reason why many young enthusiasts are now planning to build up an empire of their own rather being employed by some individual. And nothing can be better than getting the ownership of an already established business. But the only hindrance in this path is capital. There are many young entrepreneurs who have to take a step back due to lack of finance. But what if you can get the ownership of a well-established business without having to make any upfront payment?

Yes, it is true. You can purchase an existing business without any money also. But it is not easy as it sounds because you will have to evaluate several available options and then choose the best one matching your criteria to buy an existing business.

Here is a list of few financing options to purchase existing business along with pros and cons of each, so that you can clearly evaluate the best:-

1.  Loans from Bank:

This is the most common way that entrepreneurs use to arrange funds. The best part is there are financial institutions that are ready to offer loans without any collateral security and also offers easy repayment options. So once you have decided which business you want to acquire, finalize the consideration with the owner and then approach a financial institution. After you are finished completing the formalities, the financial institution will pay the decided consideration to the existing business owner and you can enjoy becoming the proud owner of an established business.

Pros

  • Availability of ready finance.
  • Minimal paperwork.
  • Credit shield offerings.
  • Flexible repayment options.

 Cons

  • If you fail to provide any of the required documents then your proposal might be rejected.
  • You can get a loan without giving any collateral security only up to some loan amount. Hence, if you are considering for a bigger business acquisition, you might need some collaterals to offer.
  • Higher interest rate.

2. Equity Finance:

Equity finance is a way to arrange finance by giving up your ownership interest in some business organizations. You can sell your existing share holding to have a strong equity finance base and can further consider for acquiring an existing business with the derived amount. But think wisely before choosing this option as you will be losing your ownership interest in existing companies which if once given, cannot be taken back easily.

Pros

  • No interest payments.
  • No further Liability.
  • No monthly Payments.

Cons

  • Your ownership interest is lost.

3. 100% Seller Financing:

Even seller financing is a type of loan but it is not obtained from a financial institution. Try to find an existing business owner that is ready to sell his business and also agrees for 100% seller financing clause. Under seller financing, the seller of the business agrees to give you a loan of similar amount to the agreed consideration. In addition to the consideration amount, you will be required to pay a certain interest amount also. All the terms and conditions relating to this clause will be explicitly mentioned in the contract. So both buyer and seller are on the safe side. The tenure of principal re-payment and interest rate are pre decided mutually to avoid future discrepancies.

Pros

  • No need to search for finance from external investors.
  • Less hassle involvement.
  • Easy payment option.
  • Legally compliant method, hence no risk involvement.

Cons

  • Higher interest rate.
  • Failure to skip a single payment cycle may lead to payment of additional charges.

4. Home Mortgage:

Although it is a risky affair, but business is all about taking chances. If you don’t have money to put in business acquisition, then you can easily get the required consideration by putting your home on a mortgage. Once you cover up the entire amount you can easily have your house ownership back. This is the best option if you want to acquire an existing business having higher revenues and a good market value. Your home is actually collateral that you are offering and usually one can expect to get higher amount if they are able to provide collateral having higher liquidity. So this can turn out to be lucrative option for you.

Pros

  • Eligibility to obtain higher amount.
  • Once you cover up the amount, you can have the ownership of your house back to self.
  • It is a safe option to decide upon.

Cons

  • High risk involvement, as if your business doesn’t turn out to perform well and generate adequate revenue then you will not be able to repay the mortgage as a result you can lose your house.
  • Higher Interest rate.

5. Personal or Business Overdraft:

There are many people who have sound financial position but they don’t save much, hence always fall short of money. If such people want to acquire an existing business but don’t have adequate consideration or almost no monetary value to pay the business owner for the time being, then you can consider taking a personal or business overdraft facility. This facility allows you instant monetary access and you can pay them on a monthly basis with some additional charges extra.

The reason why this is a good option to choose is entirely because of the ease of payment that this method offers. Your financial institution can pay the business owner the lump sum amount which you can repay back at regular intervals with some interest amount involved. That way you also have the ownership of a well established business alongside having easy payment options.

Pros

  • Easy access to funds.
  • Payment Flexibility.
  • Less hassle involvement.

Cons

  • Higher interest rates.
  • Risk involvement.

However, make sure you don’t hurry in taking up the decision. Always consult a professional as well before deciding on any method, so you will be left with a sense of content. Apart from deciding the way for financing to acquire an existing business without money, also give enough time to decide on the business that you want to acquire. Check whether the business will be able to make similar revenues in future or not and whether the revenues are mainly driven by existing owner or not. All these considerations can save you big times from landing with the wrong option.

LEAVE A REPLY

Please enter your comment!
Please enter your name here