Can you Buy a Business With No Money Down?

by Vanessa Lovie 9th of November, 2023

Can you Buy a Business with No Money Down?

Technically, yes. But is it that simple? No.

Here’s why, when you are buying a business you are committing yourself to the venture, you are investing your time, money and energy into the business to make it work going forward. So if you aren't willing to put any cash into the game, what are you actually investing and in-turn risking?

It’s about commitment.

Anyone who has owned a business knows it's nothing like real estate, especially in Australia. The real estate game in Australia is pretty simple, you buy a property, rent it out, the market increases, and you not only pay off your mortgage with rental income, but your property goes up in value. You get some tax benefits and it’s not that difficult - you don’t really have to do much work. Yes there is risk, but not as much.

Business is a whole other beast. You need to work at it, you need to invest your time, money and energy to make it work. That old saying “you need to spend money to make money” is pretty true when it comes to business, ask any business owner.

So when people spout on about “buying a business with no money down” what are they talking about? Here are some of the options - because we all know no-one is giving away a profitable business for free.

1. They are Buying a Business With Problems

Put simply, not all businesses are successful.

Sometimes people make bad decisions, usually resulting in bad cash flow and the business struggling to repay loans and expenses. Perhaps the owner signed a lease at $1,000 a week and is struggling to make sales, but don’t worry - the landlord still collects.

At times, business owners just want to get out of the game. They can't see a way ahead without someone else coming in, picking up the pieces and making the business work again. They try to sell, but the buyers don't like what the P&L and balance sheet are showing them - they don't want the risk.

But, someone who understands the industry, understands how to turn the business around - they may be willing to take the business off the owner's hands. Take on the sinking ship, plug the holes and get her sailing again.

So yes, you can buy a business in this instance with no money down. But the business probably isn’t successful, is running at a loss and the current owners want to run away from the problems. You’re taking on the problems, the debts and risks in the belief you have the skills and ability to make the business profitable.

Additionally, there may be stock and equipment to consider - I highly doubt a business owner will just give them away, especially if they can sell on gumtree or marketplace. You may find when they ‘give you’ the business, that it comes with very little stock or assets.

2. They are Sourcing Vendor Finance

Find a vendor willing to support your buying process. The current business owner may provide you with vendor finance, over say, three years with interest, to help you buy the business.

Did you spend anything upfront? No. So technically, no money down. But you will still need to find the funds to repay the loan. If you can make the business operate more efficiently than it currently is, and get the numbers working in your favour, it can be a good decision.

The main problem here, very few vendors would be willing to sell 100% of their business with $0 in their pocket and all the risk.

Business owners know when they are selling that the buyer needs to be capable of running the business, it goes to my first point of ‘what are you investing?’ If a buyer approaches a vendor with this idea, I highly doubt they will accept.

In three years the buyer could completely ruin the business, sales could drop, clients could leave, and the whole ship could sink, leaving the vendor without a business and struggling to re-coup the loan offered to the buyer.

Now, there could be a joint option. Where the buyer puts down say 40% of the sale price and the vendor fronts the rest as a loan, this is a more favourable option for both parties, as they both have some ‘skin in the game’. But this article is about ‘no money down’ so where is that 40% coming from? I guess a loan from another lender - moving money around in the hope it all works out.

No Money to Buy a Business - Get Finance

3. They are Sourcing a Loan

Whether it’s from a traditional bank, fintech or other lender, they will all want to see you have some investment in the buying process. A simple “I can do it” and no real commitment probably won't satisfy them. Why should they invest if you aren't? Most lenders will want to see the buyer covering 30% of the sale price.

If you try to combine these loans with vendor financing, they will also see holes in the plan. Unless you have a proven track record, and a good relationship with a lender and perhaps some collateral to offer, this may be an option, but a slim one.

I won't go into much detail here, you can always get a loan from mum and dad, or a family member and technically you have ‘put no money down’ you just put someone else’s down. That you will have to repay.

4. They are Utilising Crowd Funding and Government Grants

These are a lot more common when you own a business and want to scale or are starting from scratch. When you are buying a business there can be so many more complexities in place and hence there are not that many options out there to get funding specifically for buying.

Once you own a business and want to scale it and obtain funds, you can look at peer-to-peer funding or crowdfunding where you offer people something in exchange for their support such as merchandise, discounts, event tickets etc.

So I doubt this is an option, but you never know. If you have a large social media following, maybe your followers would support you to buy a business.

5. They Got a Golden Gift

“Here Son/Daughter have my business” “Thanks Dad!” Yes it is possible to be gifted a business and you put no money down. But always, always always (did I say always?) do your due diligence! Just because a business looks good doesn't mean it is profitable.

Just because Uncle Bill works 50 hours a week and is busy, doesn’t mean his business is making good money. It doesn’t mean there are no problems or legal proceedings or council notices. Always do your homework before you accept any business as a gift.

So can you buy a business without any money?

Firstly, why do you want to buy a business? If you have an entrepreneurial mind and can understand how to make money. Then you can look at opportunities for struggling businesses and how to turn them around. You need to have experience and the right attitude or you could take on a lot of risk and someone else’s problem and not be able to turn the corner. I’m assuming you still have money to invest in marketing, products etc, but you just want to save on actually buying the business.

If you literally have no money and no business experience. Don’t do it. You need to walk before you can run. Take stepping stones, and figure out how can you go from broke to having a 20% deposit? How can you maneuver a deal with a bit of skin in the game? It will go a long way to getting you a more profitable business.

Tags: buying a business finance business ownership