Big News: FounderDating is joining OneVest to build the largest community for entrepreneurs. Details here
Latest Notifications
You have no recent recommendations.
Name
Title
 
MiniBio
FOLLOW
Title
 Followers
FOLLOW TOPIC

Question goes here

1,300 Followers

  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur
  • Name
    Entrepreneur

Have you recently considered buying a business to make your startup easier to fund?

If so, I'd like to hear about your thoughts and experiences. Did you contemplate using an SBA loan? Did you approach the business you want to buy directly? Or did you try to use a broker or a brokerage site to find a business? Did the broker offer to help facilitate the financial transaction or were you planning to work with some other startup funding company...

18 Replies

Willi Melkov
0
0
Willi Melkov Entrepreneur
Businessman, Sales Expert and Growth Addict
I bought a business to enter a niche, not to fund another startup though. Usually you don't need a brokerage.

To fund your startup it would make sense to acquire a complimentary company (complimentary to your startup idea). This way you can use its cash flow to finance your r&D costs in addition to having customers ready once your product is finished.

For funding I'd recommend loans (in case it's a company with strong assets) in combination with equity capital to acquire expertise from angels and vcs.
Nancy Fulton
0
0
Nancy Fulton Entrepreneur
Media Funding, Marketing & Monetization
Exactly. A startup can purchase a company in the target industry, that already has customers, revenues, and assets . . . Founders get a salary, and they can fund deployment of new products. I'm working with a company that does SBA loans with no upfront costs, and with only the approved SBA fees paid during closing. . . they work with some business brokers . . . but I think startups are a good target market because they'll get launched faster, give up little or no equity, acquire revenues, and be more attractive to investors faster. So I want to know where like-minded startups have been looking for businesses to buy. Did they go direct to the business, or to brokers?
Peter Bray
0
1
Peter Bray Entrepreneur • Advisor
CEO at Bray & Co
Well what I can tell you is that I am tired of people using this to sell services and posing them as questions. Obvious and not what the site is for.
Nancy Fulton
0
0
Nancy Fulton Entrepreneur
Media Funding, Marketing & Monetization
That wasn't my intent . . . How do you ask about business issues without talking about business issues. It's a site for business people by business people.

I'm specifically saying most people don't know they can use an SBA to launch or grow their business. That's the specific topic I'm addressing. I'm asking this forum if they have considered doing that, and if so whether they used a broker or approached the business owner directly.

I think it's a pretty normal question.
Irwin Stein
1
0
Irwin Stein Advisor
Very experienced (40 years) corporate,securities and real estate attorney.
Nancy: I did not read your question to suggest that you were either a business or loan broker. I have worked with both over the years. You are correct that many people never consider an SBA loan. Many of the entrepreneurs on FD are younger and the SBA wants collateral, usually the family home. Buying a competitor to strengthen your own balance sheet is, frankly, beyond what a lot of people on the site can handle. If you are buying the company with debt, and can quickly convert it to equity, the strategy makes some sense. If this is something that you are considering and want to speak to an old pro to hash it out, feel free to contact me.
Nancy Fulton
0
0
Nancy Fulton Entrepreneur
Media Funding, Marketing & Monetization
Thank you Irwin. I really didn't want to alienate anyone . . . I just figured folks on this site, taken as a whole, had tried every funding, business purchase, or business sale option known to man . . .

I've worked with people who brought investors in (15% each) to fund the down payment required for the loan. The purchaser did have to provide the personal guarantee which is a non-trivial obligation. In one case the buyer had a FICO of 650 and I'm not sure they even owned a house. The SBA was evaluating the business they were buying, that business's revenues, their professional background, and their plan for the business in making the loan, rather than the business owner's assets . . . since it was a multi-million dollar purpose the assets of the new owner were never going to provide any real security for the loan.

If an entrepreneur/startup purchases a business that owns property (for example it's own premises) that provides more security for the loan (and gives the owner 25 years to repay the loan).

I'm supporting a company that provides business services, among them help purchasing or selling a company with financing provided by the SBA. They will step in to negotiate the deal, or just process the loan. So I'm not asking for a solution for funding my own startup . . . I'm asking if founders who have considered SBA loans approached the business directly or worked with a broker. Because from a marketing standpoint, if they all use brokers, I have to market to brokers . . .
Shobhit Verma
1
0
Shobhit Verma Entrepreneur • Advisor
building an adaptive recommendation engine
Nancy,
There is something mathematically wrong with what I am understanding from your question.
If the entrepreneur had means to finance buying a business, wouldn't they have the same means to fund their own startup ?
How can the entrepreneur buy a business which owns a property without financing that amount ?

I am assuming there is something I am missing, can you please give an example with cashflows and asset assumptions ?
Irwin Stein
0
0
Irwin Stein Advisor
Very experienced (40 years) corporate,securities and real estate attorney.
Nancy Thinking back, most of the transactions have been through a broker or other intermediary. Most of the companies being sold were by founders who were retiring. I was recently contacted by a business broker who wants to crowdfund the down payment for the SBA loans. I am in the process of helping him to set up his own crowdfunding platform. If that is of interest to you, I can show you how it can be done.

Nancy Fulton
2
0
Nancy Fulton Entrepreneur
Media Funding, Marketing & Monetization
Shobhit . . .

So if you want to buy a home in most places in the US, it's oddly easier to get a loan to purchase an apartment building than it is to get a loan to purchase a free standing house, even though the apartment building costs a great deal more.

Because the bank looks at the transaction and says "rents will be paying for the purchase". So they look at the value of the property, the rents its already earning, etc. So in effect the buyer is only part of the equations. If the property will cost 2M, and the rents cover 1.5M, the owner is really responsible for .5M. Where as if they were purchasing a 1M house or a 2M house (no rents) the bank would laugh outloud.

So a startup business owner who buys a business simply has to find a business that is earning enough money to cover the cost of the loan, running the business, and their salary (which is usually a cost the business is already paying to the current owner).

Ex: If I want to start an app that sells car repair services (kind of like uber for car repair shops), I might be better off purchasing a car repair shop . . . and then treating app development as a marketing expense . . .

Because I can get probably get $1M-$2.5M funding directly from the SBA for the car repair shop if its got a good customer base, and good staff, and owns its own lot. It probably is paying it's owner $5K-$10K a month, and it probably has an advertising budget of $5K-$10K I can put into an app.

From an investor perspective, after the sale, I can see . . . 1) this company has customers 2) it has assets 3) it has a business it can use to test it's app . . .

In effect the app company has bootstrapped its business with an SBA loan.

To purchase that business, founders don't need a lot of cash up front, and if they do need cash they can go to the same investors they are currently approaching to say "look, do you want to invest $100K-$200K in a business that already has revenues, that already has property, and will be developing this app". From their point of view, this is now a very non-risky venture. They just have to trust you not to tank the car repair business . . . which was running well enough the SBA would give you a loan when you bought it.

In effect the SBA has rubber stamped you and provided 2.5M in funding so you can execute this plan.

And the SBA is totally fine with you improving an existing business. A tech that buys a car repair place is clearly going to leverage their technical skill to create a marketing advantage. They'll use that advantage to expand revenues . . .
Nancy Fulton
0
0
Nancy Fulton Entrepreneur
Media Funding, Marketing & Monetization
Irwin . . . the company I'm working for to date has worked with investors and with the seller to handle down payments. But I'll let them know you're available to chat with them about the crowdfunding angle. Mostly they get deals done in 90-100 days from first contact, and I don't know if crowdfunding will work fast enough to fit into that model.
Join FounderDating to participate in the discussion
Nothing gets posted to LinkedIn and your information will not be shared.

Just a few more details please.

DO: Start a discussion, share a resource, or ask a question related to entrepreneurship.
DON'T: Post about prohibited topics such as recruiting, cofounder wanted, check out my product
or feedback on the FD site (you can send this to us directly info@founderdating.com).
See the Community Code of Conduct for more details.

Title

Give your question or discussion topic a great title, make it catchy and succinct.

Details

Make sure what you're about to say is specific and relevant - you'll get better responses.

Topics

Tag your discussion so you get more relevant responses.

Question goes here

1,300 Followers

  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
  • Name
    Details
Know someone who should answer this question? Enter their email below
Stay current and follow these discussion topics?