Double Your Business in 90 Days With $0 Cost??

We go to several trade shows per year as a way to meet potential new clients and keep on top of the goings on in the industries we serve. Nothing beats face-to-face discussions to find out what potential customers really care about and how they make their buying decisions.

Sometimes though we also meet other vendors and make great connections with businesses who can help our clients and vice versa. They may also be a great source of leads for us and meeting them is just a bonus for attending the conference in the first place.

It was at the most recent conference that I met our newest partner. They specialize in providing SBA loans which is something a lot of clients of ours use for things like working capital, buying commercial real estate, and for buying other businesses.

I considered myself pretty well versed in the ins and outs of these loans, having used them myself to buy a business and to buy a building as well as helping tons of clients get them for various reasons.

Given that, I was very surprised to learn something brand new from our new friend about how a business owner could use an SBA loan to buy a business with zero down payment! Normally you need at least a 10% down payment which while still good is not as good as zero!

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With a typical SBA loan, the way it works is you find a lender who provides them, fill out the application and a lot of paperwork and if everything goes right they will give you 80-90% of the price of the business, plus some working capital, so you can acquire a business.

But, if you already own a business and you want to expand by buying another of the same or a related business, they can finance up to 100% of it or you can use a seller note for 10% and they will finance the balance. Either way – that means you literally are zero dollars out of pocket to acquire a new business!

Generally, these loans take 45-60 days to fund, so you could find a business today and literally own it outright ninety days from now!

There are of course some considerations – you need to be able to find a business similar to yours that you can buy for a good price and run along with the one you have. You also need to make sure the math works on the loan payments.

And I highly recommend you have a plan to grow the business you are buying along with your own to make it all pay off that much quicker. Not having a growth plan for your business that works is probably not going to be improved by just adding more of the same.

Let’s look at an example of how this could work for you to really see the numbers come together!

Doubling Your Business With 100% Financing

Let’s say you have a business currently with $1M in sales and $250K net profit.

You are growing at 10% a year but this acquisition plan sounds like a good idea so you look for a business similar to yours that you could buy.

And you’re in luck – there is a similar one also with $1M in sales and $225K in net. You negotiate a 2.5X sales price (two point five times the net profit) or $562.5K. The seller will take a note for $56K and you will get an SBA loan for the balance. You have enough cash (since you don’t need a down payment) that you don’t need to borrow any working capital.

SBA loans are ten year loans at prime plus 3% (typically – not all lenders are the same). So the loan repayment for this deal comes to about $7200 per month or $86K per year. The seller note terms can be negotiated but let’s say add $1K more per month. So you are out $98K per year of the $225K in net profit you bought, yielding an increase to your year one of $127K for nothing out of pocket.

One year after your acquisition, you’d be running a business with $2M in sales and $375K in net. But that’s only if nothing else changes. Since both businesses were in the same industry there might be some overlap and you could get rid of some of the software, subscriptions, etc. that were duplicated and may get a volume discount on things like insurance, etc. You might be able to let go of one work space and save on rent. There may even be more admin staff than you need.

Even better, if the business you bought does some things yours doesn’t and vice versa, you may have added cross sell opportunities for each other’s customers. If you plan it right then a year in may see you with $2.5M in sales and $500K net.

If you were then to sell this business (not that you would after just building it up!) you could sell it for more than your old one just because it’s bigger and more profitable- it might be worth 3X the $500K now or $1.5M which is more than your old business and the one you bought combined.

This zero down loan is a new option the SBA has recently allowed and it could be a real benefit to business owners looking to grow the sales and profits of their business while not having to dip into their cash reserves. If you are thinking about doing this let me know – we’re happy to help both evaluate the deal you’re looking at and connect you with our new SBA friends!

It’s an exciting time to be a business owner and there are more opportunities than ever to succeed – anyone who tells you otherwise simply doesn’t know what they are talking about!