Thread: Buying a business with zero money down

How to Acquire a Company Using a Leverage Buyout | Nerd Business Blog

id put it in quotes but its pretty long so just read it. Any savvy business people here use these techniques?

The concept of getting an "asset-backed loan" to buy a business using the cash flow of the very business you're trying to buy is rather fascinating.

Interesting..... Well written too

It's one of the key revenue drivers for i-banks. LBO's are a sweet deal.

Bogus Drivel - Try finding a small business owner that would waste his time screwing around with an unqualified buyer that thinks they are going to get a loan on the assets of the business. Trust me, any business thats worth buying will get snapped up fast and most likely a majority cash offer will be presented.

The bulk of small business listings businesses that are tanking or in some sort of trouble,,,"dogs with fleas"

This is a fantasy land article.

What is backing the loan from the Seller? Surely he will want collateral like that $300k in equipment/inventory. You can't pledge it twice.

Originally Posted by stevecerr

Bogus Drivel - Try finding a small business owner that would waste his time screwing around with an unqualified buyer that thinks they are going to get a loan on the assets of the business. Trust me, any business thats worth buying will get snapped up fast and most likely a majority cash offer will be presented.

The bulk of small business listings businesses that are tanking or in some sort of trouble,,,"dogs with fleas"

This is a fantasy land article.

AGREED!

However, some people are experts at giving flea baths. Although it strays from the original topic, this is how Berkshire Hathaway often operates. Find undervalued businesses that are perhaps in financial trouble, low ball the purchase price, then cut the fat, wash the dog, and implement your tried and true business practices. (REBUILD, GENERATE POSITIVE REVENUE STREAMS, RE-SELL).

Regarding small businesses, whats wrong with the every day entrepreneur trying to do an lbo?. If the buyer has good credit, why would he not be able to get a loan based on the assets of the company he is trying to acquire either in full or fractionally?...especailly if the business he is buying is cash flow positive?

example:

* I wish to buy a 10% interest in a pizza business that does 250,000 a year profit.
* the business has 80,000 worth of equipment and other assets
* seller agrees to deal and bank agrees to loan me the money based on the 80,000 worth of assets
* bank finances me 25,000 @ 8% for 15 years = 238.91 loan payment
* With my 10% stake, I then make 10% of the profit which is an average of 2,083.33 a month

Is this not a realistic situation? if not explain in simple language please

Only 10% of that $80,000 in equipment and assets would be yours though and the bank won't recognize multiple lien holders, more than likely.

Originally Posted by Stance

Regarding small businesses, whats wrong with the every day entrepreneur trying to do an lbo?. If the buyer has good credit, why would he not be able to get a loan based on the assets of the company he is trying to acquire either in full or fractionally?...especailly if the business he is buying is cash flow positive?

example:

* I wish to buy a 10% interest in a pizza business that does 250,000 a year profit.
* the business has 80,000 worth of equipment and other assets
* seller agrees to deal and bank agrees to loan me the money based on the 80,000 worth of assets
* bank finances me 25,000 @ 8% for 15 years = 238.91 loan payment
* With my 10% stake, I then make 10% of the profit which is an average of 2,083.33 a month

Is this not a realistic situation? if not explain in simple language please

There are a few flaws in this argument. For one, in this instance, you would only have rights to 10% of the $80,000 of tangible assets or in other terms $8,000 of collateral. You would have to come up the other money.

Also, your argument is assuming that the business is only worth 1x of earnings which is unlikely. It is, in most cases, a multiple of that. Assuming that this business is growing, a business owner would be unwilling to give up ownership of the business and share of future earnings for that valuation.

Finally, you are also assuming that all the earnings are paid out in cash at the end of every month or even year. This is almost never the case. Most often a business will retain a material portion of its earnings to grow the business, and only a small fraction of the money will be taken out of the company and paid to investors.

Originally Posted by Stance

Regarding small businesses, whats wrong with the every day entrepreneur trying to do an lbo?. If the buyer has good credit, why would he not be able to get a loan based on the assets of the company he is trying to acquire either in full or fractionally?...especailly if the business he is buying is cash flow positive?

example:

* I wish to buy a 10% interest in a pizza business that does 250,000 a year profit.
* the business has 80,000 worth of equipment and other assets
* seller agrees to deal and bank agrees to loan me the money based on the 80,000 worth of assets
* bank finances me 25,000 @ 8% for 15 years = 238.91 loan payment
* With my 10% stake, I then make 10% of the profit which is an average of 2,083.33 a month

Is this not a realistic situation? if not explain in simple language please

1. Who would be so hard up for cash that they would sell you 10% of a small business? They would get a tiny about of money, and more headache (unless they are looking to expand and somehow pissed all there money away, so they can't come up with the tiny bit of money on their own)
2. Who would let you use the 80k worth of equipment that they own (not you the buyer) to finance your own purchase? They could do it with the bank themselves, and leave you out of it. They are still taking all the risk, for nothing but a tiny amount of money, and a pile of risk and headaches


Also that article is complete BS. Just like your example, the seller is still taking all the risk with an unsecured lone (the bank and asset loner get first rights at auction) for what? less money then he is currently making? Again, he could just use the equipment to get the $150k himself, and hire a manager. That way he gets the money up front if he wants, and still makes more every month for the outrageous 15 years quoted in that article. This article could be shortened to just say "Find a business owner that wants to give his business away. Take said business" /article.