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Financing Question

Hi. I'm interested in a business that's for sale for around $350k. The business is well known in my area and has seen much success over the last 10 years. What all is involved in purchasing a business? This may be a ridiculous question but is it possible to get 100% financing? If not what would the minimum down payment be? Any advice will be greatly appreciated. Thanks!!

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Answers (2)
William A. Price
Business Lawyer
DuPage County, IL

An examination of various sources for financing helps answer your question:

(a) Owner financing: As the other answer suggested, 10-20% is about all sellers are willing to extend, unless they want a job selling for you in exchange for taking their capital risks off the table. In that case, guaranteed or other generous future income can be promised them for less upfront needed.
(b) Bank financing: Here, you need a down payment (20% SBA 7(a) is usual, depends on the bank, a 504 is only 10%, but is RE/machinery only), and also need 100% of loan amount in your and the target's capital value, plus 120-130% of financing costs in verifiable multi-year cash flows for the target business, also good credit and a reasonable business plan and background.
(c) To get to 100%, therefore, you usually need equity, or reductions in need for loans to make the down payment more affordable. Suppliers willing to give 60 or 90 day terms to get you up and running is one possible route to same. Friends and family willing to bet on you, as well as the business, is another. Other partners can also be considered, as can local "third position" equity funds, or business factors, to buy recievables (and thus reduce working capital requirements for the business that otherwise would be part of a loan.) Note the last needs the prospective bank's agreement. Private equity or venture funds don't fit this stable but small business type. Other businesspeople in the area or others who know you or the place, or are otherwise qualified under securities laws to invest without a prospectus and public offering, are possible partners, as well.

With reasonable securities counsel, and enough time to put together deals and pitch programs that are legal and fair to all parties, you can get there, even if your own cash resources are slim.

Hope this helps,

Bill Price

William A. Price
Attorney at Law

Jul 10, 2011
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The BAF Group LLC

10% to 20%. Try to get the Seller to provide you with some financing assistance. You will need more than the deposit, though: You need operating cash. The BIGGEST problem Buyers have, is trying to start a business with no cash! They immediately run into trouble and invariably fail quickly, under those circumstances. It is better to pass at a deal, than go into it without adequate funding.

Jun 21, 2011