Banks love collateral. If you fail to repay your loan, then the bank has something it can take. Many people who want to start a business lack collateral. Here are the top two ways to purchase a business without collateral.
1. The SBA
You will need some amount of money to start a business without collateral. The larger the business, the more money you will need. Take a look at the SBA’s 7(a) program. This program encourages banks to make loans to prospective buyers. Through this program, the SBA guarantees 75% of the loan amount.
The buyer still has to put up 25% of the money to buy the business. For those looking to own a business without having to put up collateral, the SBA’s 7 (a) program is an impressive option. The cash buyer’s use can come from investors or even a gift. This program is a good one for first time business owners.
2. Seller Financing
Seller financing is another option. Motivated sellers can make things interesting. A lot of sellers agree to offer some degree of financing. Asking for seller financing is not unheard of or insulting to a business owner. A buyer may even be able to combine seller financing with the SBA’s 7(a) program. This route could provide a powerful and useful option.
It is important to note that under the SBA’s 7(a) program, the seller cannot receive any payments for two years. Working around this problem may require some creativity and effort on the part of the buyer. It may be necessary to offer the business owner some incentive to justify waiting two years for the money.
It may sound like too large an obstacle, but buying a business without collateral really does happen all the time. You will increase your odds of success by staying focused, persistent and understand your options. Get as much professional help as possible. Prospective business owners should consult with experienced business brokers and others to learn the best way to buy a business without collateral. Working together, EBIT will guide you through the steps to buy a business.