How to Buy a Business with little or no money down

Who pays for the business

In a typical lower-middle-market acquisition the price is funded by several parties at once. The buyer's job is to assemble the stack so the business's own cash flow services all of it with room to spare.

• Senior lender (bank or SBA 7(a)) — usually the largest slice
• Seller note — cheap, negotiable, often subordinated or on full standby
• Earnout — price contingent on the results the seller promised
• Buyer equity — can be a small minority of the total project
• Partner or investor equity — funds the injection in exchange for a share

The four low-cash structures

Each of these reduces or eliminates the cash the buyer writes at closing. All of them require the deal to cover its own debt.

• Full seller financing — the seller carries the whole note, usually for a premium on price or rate
• SBA 7(a) with a standby seller note — the note can help satisfy part of the required buyer injection
• Retirement rollover (ROBS) — existing retirement funds become equity without a taxable distribution
• Management buyout — an insider buys with seller paper backed by an operating track record

The math a lender runs

Underwriting starts with adjusted cash flow — seller's discretionary earnings normalized for a market salary for you. Debt service on the whole stack must clear that number by roughly 1.25x. If coverage is thin, the fix is a lower price, a longer amortization, or more seller paper — not optimism about growth.

Working capital is the second failure point. A deal that funds the price but leaves nothing for payroll and inventory fails in month three. Size a revolver or reserve separately from the purchase price.

How to make a seller say yes to carrying paper

Sellers carry notes when the alternative is a lower price, a longer market, or a buyer who cannot close. Give them reasons: a fast, clean close, a credible operating plan, security on the assets, and a rate that beats what their cash would earn elsewhere.

Structure protects both sides — standby periods, personal guarantees, offset rights against representation breaches, and an earnout that pays the seller for the growth they claimed was coming.

What gets declined

Zero-injection buyers with no operating history in the industry, businesses whose earnings depend on the departing owner, single-customer concentration, and prices that only work if revenue grows. Fix those before shopping for capital, because no structure rescues a deal that cannot cover its payment.