Welcome back to our channel! If you've ever dreamed of breaking free from your nine-to-five job and stepping into the world of entrepreneurship, you're in for a treat. In today's episode, we'll be delving into the exciting topic of how to buy a business with zero out-of-pocket expenses. We'll explore strategies that empower you to acquire cash-flowing businesses without the need for a hefty sum in your bank account. Let's dive right in.
The Importance of Deal Making
Before we delve into the strategies, let's highlight the critical aspect of becoming a skilled deal maker, especially when operating with limited funds. Being resourceful and strategic is key to structuring deals that leverage other people's money. This approach unlocks opportunities that might otherwise seem out of reach.
High Leverage SBA Financing Strategy
Our first strategy involves leveraging high leverage SBA financing. To illustrate this approach, let's consider a scenario where a tree trimming business with real estate is up for sale. The total purchase price is $800,000, with $600,000 allocated for real estate and $200,000 for the business itself. Conducting thorough due diligence is crucial before making an offer or submitting a letter of intent (LOI).
Once there is a willingness from the seller for financing, the next step involves finding an aggressive SBA 7A lender. These lenders can fund up to 90% of the total project costs, including SBA fees, loan fees, working capital, and the purchase price. After securing the SBA loan, the breakdown could look like this:
- SBA loan: $810,000 (90% of the total project cost)
- Seller carry on standby: $45,000
- Equity partner: $45,000
Benefits of the Strategy
Now that the financing structure is in place, let's explore the benefits. By combining SBA financing, seller carry on standby, and an equity partner, you can acquire a cash-flowing business without a substantial out-of-pocket investment. This approach allows you to leverage other people's money while retaining a significant ownership stake. The generated cash flow from the business can be used to repay loans and provide returns to the equity partner over time.
Alternative Options and Closing Thoughts
The strategy also allows for flexibility in dealing with the 5% out-of-pocket requirement. This can be sourced from gifted funds, borrowed money, or even a Home Equity Line of Credit (HELOC). As the business grows and becomes more profitable, excess cash flow can be used to pay down loans or refinance.
In conclusion, buying a business with zero out-of-pocket is not only a possibility but a viable strategy for aspiring entrepreneurs. If you're currently working on a deal or exploring options, consider booking a call for expert advice on structuring deals, identifying suitable lenders, and navigating potential pitfalls. We hope you found this episode insightful, and we look forward to your continued support. Don't forget to like and subscribe for more valuable content!