WHERE WILL YOU GET THE DOWN PAYMENT?
When you haveve found the business you want, the business that can make you $100K plus per year, but do not have the down payment, consider these short-term options. With a profitable business you should be able to pay back (or replace) the borrowed money in a reasonable time period:
1. Borrow from family and friends Usually willing to help and offer to pay them a higher interest rate than what they can get in a bank 7%.
2. Sell some of your investment liquidate your 401k or 403b account. Bust into your CD, that is your cash use it.
3. Cash in your whole life insurance policy Use the cash value, replace with cheaper term insurance.
4. Tap your IRA Penalties greatly offset by net profit of business.
5. SBA-guaranteed bank loan If you have good credit, own a home that has equity, have management experience, and the business has decent financial records and tax returns, this could be a viable source.
6. Take out a home-equity line of credit Tax deductible advantage.
7. Do a cash-out mortgage refinancing up to 90% of home value.
8. Sell some hard assets gold jewelry, coin collection, etc.
9. Do a reverse mortgage over 62.6 you can get the best of loans.
10. Ask your folks for a gift they can give you $12K each, tax free.
11. Borrow from a stranger if you have good credit, these are good sources: Prosper.com, Lendingclub.com, Zopa.com.
WHY $50.000 CAN COST YOU $750,000?
EXAMPLE:
Pizza/sub shop for sale for $300K with $150K cash required. Annual net profit of business is $150K per year. Buyer has the $150,000 in cash; seller agrees to finance the balance of $150K for 10 yrs. at 6%.
The buyer decides that he you does not want to pay $300K; he offers $250K ($50K less). The seller refuses; the buyer lost the deal. He stubbornly refuses to go higher than $250K.
Think about it, is this buyer unrealistic or what? It was not even $50K out-of-pocket
it was $50K that the seller would be financing and the business would be paying.
Assuming the buyer would sell the business in 5 yrs. to someone else for the same price and terms, by not wanting to pay the seller the $300K that he is asking, it will cost him $750K over the next 5 years.
Think about it. That $50,000 is only $10,000 per year over 5 yrs.; $10,000 per yr. costs the buyer $150,000 per year.
MR. BUYER, DOES THAT MAKE SENSE?
WHY DOES BUYING THIS BUSINESS COST YOU ZERO
EXAMPLE:
You want to buy this pizza and sub shop that is grossing $10K per week and netting over $150K per year, that is $150K per year, every year.
Asking price is $250,000 with half down, seller will finance $125K for 5 years at 6 percent.
Let’s assume that you work this business for 5 years, the gross sales remain constant. You then decide to sell it, not for a profit but just what you paid for it.
WHAT IS THE ACTUAL PICTURE OF THIS TRANSACTION?
1. You put $125,000 cash down at Closing. You got that cash back in the first year. Your cash investment at that point is ZERO, the business is going to pay off the balance that you still owe the former owner.
2. Over the five years that you’re working the business, you’ll earn
$750,000.
3. You sell the business for $250,000, just what you paid for it.
OVER THIS 5-YEAR PERIOD, YOU HAVE EARNED $750,000!
HOW MUCH DID IT COST YOU TO EARN $750,000?
ZERO!
YOU BOUGHT IT FOR $250K AND SOLD IT FOR $250K, but because you were smart enough to buy it, you made $750,000.
Good for you!
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