100% Seller Financing (No Money Down) Businesses - YouTube

Hi, this is Brett Cenkus. I'm a business attorney with Cenkus Law and M&A

mergers and acquisitions advisor with Braaten Woods. I do videos on all sorts

of topics, but a lot of mergers and acquisitions. If you have an interest in

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you think something I said is incredibly insightful or incredibly stupid, drop a

comment below the video. I appreciate you watching, enjoy today's video. Hi, this is

Brett Cenkus, I'm a business attorney at Cenkus Law and a mergers and

acquisitions advisor. Our firm is Braaten Woods. Today we're gonna be

talking about buying a business with no money down. A hundred percent financing

for buying businesses. Now, you might notice that I'm at a different location

today. I'm shooting this from Playa Coronado in Panama. If you buy what I'm

selling to you today, you can buy this lifestyle. You can own a palatial estate.

You can live in Panama and work from here. Buy businesses with no money down.

Kidding! We were joking. Robert who works with me, Robert Cherry is

down here and we're talking about how funny it is if we we rented a place in

Coronado Panama and we are working from there this week, but if we sell this idea

of a lifestyle- which is how people sell all sorts of things online. These

infomercial-type products. And that's what might have caught your attention is

buy a business with no money down. It's a very scammy space where people

sell these products, these courses to try and sell the dream: if you just do what

they do you can own a palatial estate in Panama. You can be rich..

maybe not famous, but you can be rich just without using any of your own money

without knowing anything, you just got to pay nine hundred ninety five dollars for

a course. So that world by the way is not a very good option for anyone. There are

very very few people in the world who are going to be able to buy a business with

absolutely no money down, with no access to resources. Those products are

everything I've ever seen the next space is

scammy. They're selling just a dream, a hope. You're never gonna be able to buy a

business with their with their system. Okay, now there's a reason for that- we'll

get into what you can do with little to no money down in a minute. There is some

there's a pot at the end of this rainbow. We've got some real tactics. But these

courses are often sold to people who don't have any credibility, don't have

any resources.That's a very difficult space place to start from and to go buy

a business with no money down. And the reason is because we live in a world

where money makes things happen. And I can remember being 21 and thinking: oh I

can't remember what it was, some commercial real estate project. We needed

money to buy an appraisal and to do due diligence, we didn't have any money.

Then I'm thinking well that's not fair. I mean, how do you get anything done if you don't

have any money? Well the answer is you you usually you don't. Okay, because

you're better off going to do something and making a little bit of money and

learning along the way, right. So people who have money also have experience and

credibility. These things all kind of come together. If you've got none of

those: no experience and no money, that's a hard place to get people to trust you

to sell you a business without you putting any money down to invest in you

without you putting any skin in the game. That's the bad news. Those products I'm

never gonna be the one to say someone couldn't do it somewhere, you can't pull

that off. Maybe you can, but for the most part those kind of infomercial hundred

percent month no money down products are not real tools to use in the world. Now

there are certain types of no money down business purchases that we've seen and

that we've seen work.Okay, one is where you are running a business... we

represented out of Cenkus Law- we represented a buyer of a business a few

years back who bought an excellent business and who didn't put a dollar down on it.

Now he had run that business for ten years. He was the owner of the business, a

sole owner was willing to sell. That's also kind of important because

most if you've got multiple owners and investors and things they have different

interests they all want a big fat check. To get a deal done like this which we've

seen a couple of times usually you need to have a good relationship with a sole

owner who was sort of a father figure to our client and really wanted this person

to buy the business. So that's a very unique situation. We've got one on our

plate right now which is kind of similar, and I'm gonna get into later on, explain a

few of the nuances but that's a very unique situation. If you're not running a

business today, is it possible to establish relationships with people who

might believe that you are really deserve to buy this business? That it

will be in good hands, that you won't run it right into the ground. A certain

amount of like they want to they they trust who you are in the world who

trusts you to do this, by the way, that business he's paying it off and he's

paying a fair price but just over time so would this person believe that you're

capable of paying that loan back that's a unique situation again often requires

that you have run the business and shown your ability to run it already or have a

very strong relationship with someone who thinks I really want to kind of help

this person and I and I think it will pay off for me. But it's so absurdly in

favor the structure that deal is so absurdly in favor of the buyer that the

seller's really gotta wanna do it. Right? It's got to be situation so you

think that you're gonna call a business that's owner who's listing their

business for sale somewhere in the world and convince them to do this for you is

not reality. That just is highly unlikely. They're probably not gonna feel like you

deserve that gift. They're probably not gonna feel like you could pay that back.

So the infomercials are selling this idea that really is not really in tune

with with where a sellers head is going to be on a deal like that. But we have

seen those deals get done in those unique relationship situations. Another

that I've seen work a few times: it doesn't require that you be running the

business and doesn't require that you have a special special relationship is

the situation but it does require some degree of credibility so it requires

that you be someone who's done something in the space or has a team who's resumes

are appealing to a seller of a business. We've seen a model where the the buying

group and it's usually the group will come in with a plan and just give equity

in a new venture. So in other words, they'll approaches seller of a business

and say listen we'll buy you out today and we'll just give you stock in our

company. And they're doing this over and over and over. Something like a rollup. I

have a video out there about a rollup where you're buying a lot of companies

in the same space and growing it into something much larger, that you're

ultimately going to sell or take public. That pitch we've seen work. We've seen

sellers agree to sell out for just stock and a new venture, no money. Now

almost well in every instance I've seen that the seller stays on and continues to

run the business. So this is a unique situation - in that

a seller of a very very successful business who's really built something up

and is doing great isn't going to be interested in this. They're going to want

to take chips off the table. This appeals to an industry where the sellers almost

universally or maybe there aren't a lot of buyers for these businesses so maybe

they're selling for a few hundred thousand dollars under a million dollars

the market is much less liquid. The seller's willing to stay on right and

continue draw a salary instead of being an owner. I mean you have a little piece

of the bigger venture, but now they don't have all of this smaller piece. It's kind

of tired of running the business. They just want to provide the service, so this

works well. Think about situations where you've got for example maybe it's a oh a

small convenience store owner or a service business, it could be a

contractor, or a painter, or professional services like dentists and vets usually

want a little something more. But there are a lot of businesses where someone

gets into it and they like doing the service so

they're in business for themselves. They're are a roofer. They they paint. They fix

cars whatever it is and the back-office piece of the business: they hate. They

have no time for it. They don't have time to go out and knock on doors and

sell. A moving business might be a great example here. Someone who is a good move

from decided I'll go and business for myself and then they realize like all

the back office stuff, all of that's a pain. And if you come in with a good buying

group of vision its credibility you say listen let us do that. Let us do all the

stuff you don't like to do. You'll continue to draw a salary which will be

about what you used to take out of your business, and now you'll just be an

employee and you'll have a little stock in our in our venture and we're gonna

grow this into something much grander and we have the resources and the team

to do that. There's a pitch there that can work. We haven't actually seen it be

successful, usually the group's doing this have

credibility but they're not bringing any real money and resources to the table.

They're limited by what they can do. But we have seen sellers mostly sellers who

are kind of frustrated learning their business. So these aren't the most

attractive businesses in the world to buy but we've seen sellers, many sell out

to a group like that. And is it possible that that group could do something to

take that somewhere? Sure. That's possible. That's another no money down model in

the world that we've seen work. Again, I haven't seen it successfully exit on the

back side but I have seen sellers sell their business for just stock in a new

venture. So those are two truly no money down-

and that's no money out of the pocket of the buyer, no borrowed money, no gifted money

nothing at all to the seller. Okay and when I think of no money down

that's kind of where my head is. There's another version which is more common and

more plausible for you to pull off which is no money out of your pocket but that

the seller gets money at the closing table. So for example you might find a

business that's doing okay, that the seller, all of these ideas by the way the

sellers not getting a lot of money at the closing table they've got to be able

to do that. They are there to stay on in the business and

continue to draw a salary or they need to, they need to be okay and have other

resources on the side or you need to give them enough money at the closing

table tab that makes sense that they could go on and have some time off and

then go do something else in the world. It's very rare that someone's running a

business, I mean I guess they could be a retirement age just go on retirement

money but like somebody's been growing a business any degree of success to just

exit and get nothing have no resources to work with the not stay out of work in

the business that's challenging. But there are it's possible to find a decent

business where let's say the business is good sell for a million bucks

and you agree to get an investor to come in or you borrow $250,000 or $500,000

and the seller carries the rest back as a note. Ok, the seller is getting

something at the closing table so if it doesn't come from your pocket then it

comes from an investor that you bring in, a partner you bring in, money you borrow

and the seller gets something. And then the seller may continue to carry some

money back as a note or some seller financing and I've done a video on that.

That is a more but there's more opportunity there. You're not asking the

seller. Again, so, seller's getting something at the closing table whether

or not they stay and work for the business that's a separate issue but the

world gets a lot easier when you have some- somehow cash is moving to the

seller. That's a lot easier. Doesn't mean they need every single dollar. They might

continue to hold a loan or they might take some of the money in the form of an

earn out; which is over time depending on how the business grows or just to defer

some of the purchase price and push it out. But again in this world you're not

putting money in, okay, but someone's putting money in okay. There are some SBA

programs out there we don't really keep up with those programs, some of our

clients use those programs and so we see it tangentially but when we do M&A

advisory work it's just not a big part of the equation. But there are programs

there's two big programs the SBA has: one is the 7a program and the other is the 504

program. The difference is 504 is all real estate. 7a

can be for different things. Some of those programs over the years I've seen

do allow for a hundred percent financing. They usually want skin in the game

from you, the buyer. But sometimes they'll allow you to take a gift from a relative

a parent or something like that to be some additional money into the equation.

So it's possible to get the seller a hundred percent of what the seller wants.

90 percent of it let's say from the Small Business Administration and ten

percent from you know your rich uncle, okay. That's possible or the version of

that I described earlier which is the seller carries back some some financing.

Another version of this, again we're in the world where nothing's coming out of

your pocket but the sellers getting something if not everything at the

closing table. Some businesses if they're well-run and this is the one we're

looking at now for a client, have assets and those assets don't have liens

or loans on them currently. So it is possible to arrange a structure where at

the closing table you use the assets of the business you're buying to get a loan

against those assets that's possible and that loan depending on what kind of a

loan it is; if it's a low loan-to-value, if there's good hard assets, equipment

things that are easily sold, right, then you only need- let's say you need 50

cents on the dollar to make the deal work. So you've got a million dollar

purchase price the sellers agreed to carry back a note for let's say $400,000.

That means the seller is going to be paid over time out of the business as a

loan so you need $600,000 at the closing table and let's say the business has a

million dollars in assets. It's possible to get some lender to come in and lend

against those assets and do a deal like that. There are products in the market

they're called, they're a type of receivables financing: one type if it's a

credit card based loan called merchant cash advance. So this is a business

that's kicking some cash on a regular basis maybe that

cash is running through credit cards through the business- that's called a

merchant account. Possible to get a lender to look at that and say I'll set

up a straw a credit facility at the closing table to use those future

revenue stream of the business to give you some money up front. So maybe there

aren't hard assets, but there's revenue. A consistent revenue stream that some lender

would fund. They're gonna fund it at the closing table and help you get money

into the sellers pocket. Those tend to be pretty expensive products. They have a

place in the world but some of them could be up to a hundred percent. I mean

they're there they're like payday loans. Not all of them, but it's a type of

factoring is another term you might hear for this where lenders basically looking

at their they're buying a future revenue stream. It's really not a loan at all.

It's the sale of a future revenue. Could you structure a deal creatively to get

money from those and have the seller carry back a note or get a gift? Yeah

that's possible. Those things are possible

and that's a much more plausible way to get a business done with no money out of

your pocket and you're not asking the seller to take zero on day one which

fundamentally can, that is a very hard sell. So on the deal we're looking at

today it's we don't know if we're gonna get this done. We've been hired as the

lawyers and as kind of an M&A advisors sort of help just generally make this

how do we put together structure that might make sense to the seller the the

team who's buying has been running the company for a while, they have money but

they don't want to put a lot of money into that deal. What's the way we could

put this together and we're looking at all sorts of creative structures. One of

them is to use some of the assets of the business and bring money in at the

closing table. Another is to have the seller carry back

a loan, another is to have the seller continue to retain some interest in the

business so they continue to keep I mean they might in the short term keep 70 or

80 percent of the business and our buyer purchases more equity over time at

increasingly higher prices. All of this is things that were brainstorming to

make a deal work to have our buyer bring as little up front

as possible for a few different reasons. That is we we may be successful

getting a deal done there would just be creative looking at different options

and among those options are all sorts of things I've talked about on this video.

All of these things whether they be the first two which I described, which is

you've been running the business for ten years and the seller, the sole

shareholder is sort of a motherly or fatherly figure to you wants you to buy

the business, that option the one where you have a team that comes in and just

gives equity, that option, or this other one where the seller is going to get

something through some sort of created structure, these are all possible things

Whereas I guess what I'm telling you is the infomercial that tells you coming to

just do what I do, buy my course, learn how to buy businesses with no money down

ever, right? Buy bunches, a whole bunch of businesses and have a big Panamanian

estate- that's save your money. Save your money and learn a business. Establish

relationships, understand these financing tools and there is a real opportunity to

buy money or buy businesses it's you be without money out of your pockets but

that looks a lot different than the nine hundred ninety five dollar

infomercial you're looking at. So if you have questions about this, reach out, drop

a comment down in the comment section. If you like it, share it. If you've ever had

if you're telling me I'm wrong, you bought one of those courses and you

bought a business with no money down from someone you absolutely didn't know

give them no money at the table, I want to hear about that. So share your

experiences. Thank you for stopping by