Purchasing a Business With Zero Money Down: Myth?

May 5, 2023

Buying a business can be an exciting and profitable investment, but not everyone has the capital to purchase one outright. So, is it possible to purchase a business with no money down in Canada? The short answer is maybe. It is possible, but it requires creativity, a solid plan, and a bit of luck.

You will hear a lot of people say that you can buy a business with no money down - but from what we have seen after completing 300 transactions is that (unfortunately) you can’t. Although, a business purchase is possible even if you don’t have the standard 25% cash down payment.

Inspired by the M&A Talk podcast episode, “Can You Really Buy a Business with No Money Down?”, we decided to explore this from a Canadian vantage point. The guest on the podcast had some great points on how to do this in the United States, but can those strategies work in Canada?

To purchase a business with no money down, the most viable pathway is to find a distressed business. There are hundreds, or maybe even thousands, of businesses out there that are not profitable or are distressed and the owner is looking to get out of them – fast. This is typically the best bet when it comes to purchasing a business with limited funds. You acquire a business at little cost from yourself upfront (yay) but in most cases, you get what you paid for? While it may seem appealing up front, you need to prepare headaches later down the road. Meaning there is usually a reason that the business is in distress or that the seller is trying to get out of it so quickly. Plus, if you think that you did find a diamond in the rough that just needs some TLC to become profitable, ( and that TLC usually comes at a cost.) So even if you aren’t paying the seller upfront, you may have to invest significant funds in marketing, business development, new equipment, or some other asset that will probably not come cheap. Unless you are confident in your abilities as an operator and you have enough money to turn a business around,  this may not be an ideal way to acquire a business.

The traditional way of purchasing a business involves obtaining financing from a lender, typically a bank. This process can be time-consuming and difficult, as lenders will want to see a solid business plan, financial projections, and proof of the buyer's creditworthiness. However, some alternative options exist.  

  1. One option for buying a business is seller financing. This means that the current owner of the business agrees to finance the sale and receive payments over time, rather than receiving a lump sum up front. In this scenario, the buyer can negotiate the terms of the loan, such as the interest rate and repayment schedule. The seller may also require collateral, such as the assets of the business, to secure the loan in order for this to be a viable strategy. If you don’t have any assets, this is unlikely to work.  

  1. Another option is to partner with someone who has the capital to invest in the business. This partner can provide the initial funds needed to purchase the business, and the buyer can contribute their skills and experience to manage and grow the business. This type of partnership can be structured in many ways, such as a joint venture or a limited partnership.  

  1. Franchising is another option for those who want to start a business but lack the capital to do so. With a franchise, the buyer purchases the right to use an established business model and brand name. In some cases, the franchisor may offer financing or assist with securing financing from third-party lenders. Some home based franchises can be purchased for less than $50,000.

  1. Finally, government programs and grants may be available to assist with purchasing a business. For example, the Canadian government offers programs and grants for small businesses, such as the Canada Small Business Financing Program and the Canada Job Grant.

So is it possible to purchase a business for little or no money in Canada? Technically, yes! But do we recommend it? Not really. From what we have seen, you get what you pay for and you want to get the best business possible - not one hanging a discount option. We have businesses for sale in all price ranges on our marketplace so be sure to check it out and find the right business for you! Or fill out your email marketing preferences and you will be automatically notified when deals match your criteria.

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