One of the biggest misconceptions about buying a business is that you need to have enough cash to pay the entire purchase price upfront. In reality, how you structure the deal can be just as important as the price you pay.
As a business broker, I often see opportunities where a buyer and seller agree on the value of a business but struggle to bridge the financing gap. That’s where creative financing can make a difference.
Here are four strategies worth understanding.
Instead of receiving the entire purchase price at closing, the seller agrees to finance a portion of the sale. The buyer makes payments over an agreed period, typically with interest.
Why would a seller agree? It can expand the pool of potential buyers, help close a financing gap, and potentially generate interest income. However, sellers take on repayment risk, so the terms and buyer’s ability to pay matter.
For eligible acquisitions, an SBA-backed loan may help buyers purchase a business without funding the entire purchase price from personal savings. The buyer still needs to meet lender requirements, contribute the required equity, and demonstrate that the business can support its debt.
The key is to speak with an experienced acquisition lender early—not after you’ve already negotiated the deal.
An earnout ties part of the purchase price to the business achieving agreed-upon results after closing. For example, the seller might receive additional payments if revenue or earnings reach specific targets.
Earnouts can help bridge a disagreement over future performance, but the terms must be carefully defined. Both parties need to agree on how performance is measured, who controls the business, and when payments are due.
Sometimes the best solution involves several sources: buyer equity, an SBA loan, seller financing, and potentially other permitted funding sources.
For example, a buyer may not have enough equity to fund the entire acquisition independently, but a carefully structured combination could make the transaction feasible—provided the lender approves the structure and the business generates sufficient cash flow.
Creative financing isn’t about finding a way to make a bad deal work. It’s about finding a practical structure that aligns the buyer’s resources, the seller’s goals, and the business’s ability to support the transaction.
The purchase price matters, but so do the down payment, monthly debt payments, working capital, seller involvement, and the risks each party assumes.
My advice? Don’t just ask, “What’s the asking price?” Ask, “What structure could make this deal work for everyone?”
The right financing strategy can open doors—but every structure needs careful review by the lender, attorney, and tax professional before moving forward.
Considering buying or selling a business? An experienced business broker can help you explore potential deal structures and identify the right professionals to involve.
— Bill Ilgenfritz, M&A Advisor | Murphy Business of Pittsburgh