How to Purchase a Business Without Collateral
Many prospective business owners believe that purchasing a business without collateral is impossible. The simple fact is that banks do expect collateral when making a loan. Since this is the core reality of the business world, it means that many who are eager to own a business will ultimately not be able to acquire one. However, while it is true that banks want collateral for loans, there are some ways that would-be business owners can still progress towards their goal of owning a business. In this article, we will explore a couple of the ways that a prospective business owner can still succeed.
First, we must make a critical distinction: there is a difference between not having collateral and having no funds. It is vital to note that the larger the business you plan to buy, the more money you will ultimately need.
A great place to begin the process of buying a business without collateral is to talk to the SBA. The SBA’s 7 (a) program offers up incentives to banks to make loans to potential buyers. The SBA’s 7 (a) program is a simply fantastic program for those without collateral, as the program will cover a whopping seventy-five percent of the loan amount; this means that you, as the business owner, only need to have twenty-five percent of the price of the business. As though this program was exciting enough, the SBA’s 7 (a) program also allows prospective buyers to use money from investors or gifts towards the needed funds. Thanks to this great SBA program, you may qualify for a collateral-free loan option.
A second option is seller financing. Seller financing is quite common in various forms. If you can find a motivated seller, such as one who is eager to retire, seller financing becomes a viable option. It may even be possible to combine seller financing with the SBA’s 7 (a) program for a powerful one-two punch. In this situation, a vital part of the process is finding the right business and seller.
Brokerage professionals have databases of businesses for sale along with unique insights. A Business Broker or M&A Advisor may instantly know of a business that is a good fit for buyers without collateral. Working with a Business Broker or M&A Advisor can be a massive shortcut toward finding just such a business and seller.
Ultimately, prospective business owners shouldn’t be dissuaded by the challenges of a lack of collateral. A lack of collateral is indeed an obstacle, but it doesn’t have to be an insurmountable problem. By teaming with an experienced brokerage professional, it is possible to find a path toward owning a business without collateral.
Copyright: Business Brokerage Press, Inc.
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