How to Buy a Business With No Money Down (17 Proven Ways) 

Are you looking to buy a business with no money down?

It might sound far-fetched but there are many ways you can do it. In this article, I’ll walk through 17 different ways to buy a business with $0 out of pocket. I hope you find this to help stimulate ideas around how to structure a deal.

In most scenarios, you’ll often only need one or two of these strategies, but this should give you plenty of options to consider.

Buy a Business With No Money Down – 17 Ways

1. Seller Carry Back
2. Earn In
3. Co-Investor
4. Tollgate Deal
5. Deferred Down Payment
6. Seller Consulting to Offset Purchase Price
7. Asset-Based Lending
8. Earn Out
9. Baseline Deal
10. Asset Carve Out
11. Lease Option
12. Reverse Wholesale
13. Integrator Investor
14. Self Liquidating Payments
15. Deferred Close + Promotion
16. Intellectual Property Royalties
17. Revenue Share

1. Seller Carry Back

In this arrangement, the seller agrees to finance part or all of the purchase price.

You purchase the company for a set price, and the sellers carry back the financing. You pay the sellers installments over a set period of time as a loan (typically 5-10 years, with interest). This can be an attractive option if the seller is motivated to sell and you have a good relationship with them.

One benefit of seller financing is that it can help you get a lower interest rate. This is because the seller is typically more interested in getting the sale completed than in making a profit on the loan.

The debt of the company will be paid off from the profits of the company, so the business pays for itself.

2. Earn In

In this scenario, you would provide services to a business for a period of time in exchange for a percentage of equity. Think of earn-ins as adding value to an existing business owner with your time, effort, or resources (i.e. consulting, growth/marketing advice, services, or use of products).

There are quite a few flavors of earn-ins:

• Event milestone (equity vests after completion of a certain activity or project)
• Performance milestone (equity vests after achieving pre-defined performance goals)
• Revenue milestone (equity vests after reaching certain revenue goals)
• Profit milestone (equity vests after reaching certain profit goals)

If you have marketable skills, earn-ins are a great way to leverage your existing skill set to earn equity without any upfront capital.

3. Co-Investor

A co-investor is essentially a partner – someone else who puts money into a deal and receives equity in return.

If you can find someone who is willing to invest in the business with you, they will usually be more than happy to take on a smaller ownership stake. In return, they will likely want a say in how the business is run.

Before you bring on a co-investor, it’s important to have a clear idea of what you’re looking for in a partner and what role they will play in the business. You should also have a written agreement that outlines each person’s responsibilities and ownership stake.

4. Tollgate Deal

As a tollgate, you become an intermediary that connects the buyer and seller. In return for a fee (usually a percentage of the purchase price), you help facilitate the sale.

Tollgate deals can be attractive because they require no upfront investment and you usually don’t have to take on any risk.

You can find businesses that are looking for a buyer by contacting business brokers, searching online classifieds, attending industry trade shows, or doing proprietary outreach.

5. Deferred Down Payment

I first learned this strategy from my mentor, Roland Frasier, and I think it’s brilliant. This is a deferred, no interest down payment for a period of time ranging from 30 days to 6 months.

It allows the seller to still receive a down payment, but it’s paid out at a later date. This gives you a tremendous amount of flexibility because you don’t have to come up with the money upfront. Often times you can use this time to run promotions to allow the business to pay for the down payment.

You can structure a deferred down payment in a number of ways, including:

• Installment plan – you make regular payments over time until the down payment is paid off
• Balloon payment – you make a lump sum payment at the end of the specified period
• Promissory note – you sign a document promising to pay the down payment at a later date

6. Seller Consulting to Offset Purchase Price

This strategy involves carving out a fee from the purchase price to pay the seller a consulting fee for a period of time.

This can be a great way to get the seller’s help and knowledge without having to pay a large upfront fee. It also allows the seller to continue to be involved with the business, which can be beneficial for both parties.

For example, if you purchase a business for $2M and pay the seller to stay on and consult with the company for 2 years (at $10K per month), you’ve effectively reduced the purchase price by $240,000.

This allows you to finance that amount over a longer period of time (2 years in our example) along with the tax benefit of expensing the $240K as a consulting fee (vs. the non-tax benefit of purchasing the asset).

7. Asset-Based Lending 

If you’re purchasing a business that has assets, such as inventory or real estate, you may be able to use those assets as collateral for a loan.

You can get these financed by a third-party source, and the great thing is that you don’t have to put any money down. You’re effectively buying it with its own assets.

This type of lending is typically done by specialized lenders who understand the value of these types of assets.

8. Earn Out

This strategy gives the seller a percentage of the business’s profits for a period of time after the sale. Often this is best used when you have a disagreement on valuation – if the previous seller is basing the sales price on future growth that may or may not happen (not what has happened historically).

The earn out period is typically 2-5 years, and the amount of the earn out is based on hitting certain milestones, such as revenue targets or profitability goals.

This can be a great way to get a business with little to no money down while reducing risk as you retain the knowledge and expertise of the previous owner.

9. Baseline Deal

In a baseline deal, you agree to work with a profitable business and participate in the future growth.

There are many ways to structure this type of deal but here’s an example: let’s say a company currently earns $2M in profits per year. The current owner keeps this baseline amount (removing risk from the deal for them) and you split the upside 50/50. If you are able to grow the company to $4M, this gives you $1M of equity.

This type of deal can be very attractive to an existing owner (they have limited to no downside) while giving you a great deal of upside potential.

10. Asset Carve Out

When you consider buying a business, it might become clear that you don’t need all the assets to achieve the outcome you’re looking for. You can carve out these assets from the deal and reduce the purchase price accordingly.

This strategy is often used when you’re purchasing a division or product line from a larger company. In this case, you would only purchase the assets associated with that division or product line. This can be a great way to get what you need without overpaying for assets that you don’t need.

For example, if you’re purchasing a product line that consists of inventory, machinery, and real estate, but you already have adequate inventory and machinery, you may only choose to purchase the real estate.

11. Lease Option

With a lease option, you agree to lease the business for a specified period of time, with the option to purchase it at the end of the lease. Essentially you are renting the business, with no obligation to ever purchase it.

This can be a great way to test out a business before you commit to buying it. The beauty is it gives you a birds-eye view into potential profit-boosting opportunities to implement when you own it.

It also gives you time to raise the capital needed to purchase the business.

A couple things to make sure of:

• Make sure that the option price is fair market value. This will ensure that you’re not overpaying for the business if you decide to exercise your option to purchase.
• You should negotiate all amounts you pay in rent to apply to the purchase price. 

12. Reverse Wholesale

This is a great strategy if you’re looking to buy a business with no money down and you have some expertise or connections in a particular industry.

The way it works is you find a business that’s for sale, get a contract option to acquire a company for a fixed price over a period of time (typically 30 to 90 days), and then sell it to a third party during the option period. For example, if you get a contract option to acquire a business for $1M and then find someone willing to pay $1.3M during the option period, you keep the $300K difference for your efforts.

This is similar to the tollgate deal we covered above: you’re essentially being paid to find a business for someone else. 

13. Integrator Investor

This involves finding an investor that is willing to operate the business going forward – either someone currently within the business or an outside investor (here are some ideas from Forbes).

This individual invests money in exchange for a minority equity interest (sometimes at a higher fair market valuation than what you negotiated for the deal), and you get to use this money as a down payment to the seller.

14. Self Liquidating Payments

This strategy is a creative way to get financing without giving up any equity in the business.

In this type of deal, you agree to make payments to the seller that are higher than the cost of goods sold (COGS). The difference between what you’re paying and the COGS goes towards the purchase price of the business.

For example, let’s say you’re buying a business for $2M and the COGS is $1M. You agree to make monthly payments of $1.2M for 24 months. This means that each month, $200K goes towards the purchase price of the business.

At the end of the 24 months, you would have effectively paid off the entire purchase price of the business without giving up any equity. The key: you’ll want to be sure that you have enough cushion for the company to make payments on the whole structure.

15. Deferred Close + Promotion

This strategy involves taking over the business but deferring the closing date for a short period of time.

You can use this time to run a back-end promotion to existing customers – use the profits to contribute to the down payment and purchase price.

Here’s a video from marketer Frank Kern to give you some inspiration:

16. Intellectual Property Royalties

If the seller has any type of intellectual property within the business, you can agree to pay out IP royalty payments for a fixed period of time (could be by unit sold or a fixed payment).

You can use this arrangement to reduce the upfront purchase price.

17. Revenue Share

Revenue sharing is an agreement in which two or more parties agree to share an increase in revenue generated from a project or venture.

One of the benefits of revenue sharing is that it allows parties to share the risk of a venture while still being able to participate in the upside potential. This is another example of when you can come in with your skillset to add value.

Another benefit is that it can align the interests of the parties involved, since you’ll both be working towards increasing the revenue. This can help to create a more synergistic relationship between both parties.

Make sure that you have clear guidelines to determine how to split the revenue to avoid any tension down the line.

Conclusion

Business ownership is possible even without tens of thousands of liquid cash.

With a little inventiveness and outside-the-box thinking, you can find the means to purchase a terrific business without paying anything out of pocket.

The big takeaway I want you to have here is that you’re only limited by your creativity.