5 BEST Financing Options For BUYING Online Businesses!
Hey, what’s up YouTube. Today I’m going to be talking about the five best financing options for online businesses. And this has been s
uch an interesting topic because I think financing in the online business space has had such a bottleneck for potential buyers to get in, acquire businesses, and start making a cash flow from these acquisitions.
So today, I’m going to be talking about the five best financing options. Just a quick background about myself, I was employee number four at Empire Flippers, I helped broker more than $120 million worth of online businesses. I’ve acquired my own portfolio of online businesses, from acquisitions from bootstrapping, and I love sharing this photo here of helping grow Empire Flippers from five or six people to hundreds of people, so no longer working with them.
But I still work in the space, I do work indirectly, as an acquisition advisor with a lot of brokers. And I’m still in the buying and selling space. So but more on that later. So let’s get into the best financing options. And we’re going to start off with this kind of quick overview. And then we’ll get into kind of the pros and cons, what’s the difference between these different financing options.
So to break it down into three different sectors, you have the government financing, this is the SBA, this is essentially going to be a Small Business Association, that is a much more traditional route of financing. There are a lot of interesting things about this, which we’ll get on to later that we have in the middle, we’ve got the hybrid options, these are going to be Silicon Valley venture-backed companies that have normally raised, you know, 30 to $50 million. And a lot of that money they’re using to invest in these deals because they’re going to essentially make money through the interest rate of financing and lending money.
The third option is seller financing. Seller financing is available with just about every broker in every marketplace that you use. And I’ll get into more exactly what seller financing is towards the end. So you want to stick around for that, because I think it’s one of the best options out there. So more on that later. So let’s go ahead and kick it off with SBA. And oh, man, SBA kind of gives me a lot of flashbacks, a lot of PTSD, mainly because I’ve dealt with so many deals, and I’ve seen so many buyers very excited, it’s like, oh, I just got approved for $2 million $3 million worth of SBA funding. And long behold, they spent six months trying to get a deal done. They’re working with a bunch of different sellers to get this deal done. And it doesn’t get approved for the actual SBA loan. There are so many different things that go into SBA lending, it’s just a one extremely convoluted and long cycle to actually get when you get the initial funding to actually getting the money for the right business. So once you get approved, you actually have to match up that business and make sure that that you know, two $3 million will be allowed to be deployed on a business. A few of the things that also are required is you’re going to need to have some sort of leverage or capital, a lot of times you can either put up a business put up a house, so there is a lot of leverage that you have to put on the line to get lending or a loan for two to $3 million. So SBA is kind of built for buying and acquiring older style offline businesses. That’s probably the biggest disconnect here, the the whole system is kind of old and outdated. Like a lot of government programs. It’s not 2020 to optimize for online businesses. And the SBA is basically if you want to waste a lot of time, then go through the SBA, I wouldn’t really recommend it for most people, because there are now a lot of better financing options.
The reason that people go to SBA is that for the longest time, it’s been the only option out there for lending to buy and acquire these cash-flowing online businesses. So I don’t want to rag on too much. I think I’ve seen dozens and dozens of deals, though, that get approved for SBA, and they just never end up working out for a variety of different reasons. So I personally don’t actually work with any SBA buyers. I don’t work with anybody who’s looking to go the SBA wrap because it’s so time-consuming, and it has a very low chance of success. So that’s my two cents on the SBA realm. And a lot of people that I’ve talked to in the industry just avoid it as well.
So hopefully they can figure it out to kind of optimize things for online businesses. So let’s look at one of my favorite options, which is seller financing. And this is kind of a real-world deal that I helped negotiate recently. I have a person in my buyer program that’s buying an online business, these aren’t the exact fit. Here’s a slight change to protect the buyer. So a real-world example, let’s say we have a business for $200,000. And you negotiate down to give you $125,000, upfront, and then the other $25,000 over a 12-month period. So one, you’re essentially getting more bang for your buck here, and you’re going to be getting an interest-free loan. So this $25,000 is essentially being taken out of the business. And there are a few different ways you can tie this, you can tie this urn out, or the seller financing to actually goals, or it can just be over a 12-month period.
Do you think a lot of sellers won’t go for the goals, but sometimes it can be, you’ll get the percentage of the growth over a certain period? So every month after the business, let’s say the businesses for the last 12 months are making $5,000. And then that financing will be only if it’s over $5,000, where you get, you know, an extra $2,000. So you can have these kinds of benchmarks. And it can be based on the performance of the future growth of the business. That gets very complicated, but it is a very strategic way to buy a business and to also keep the seller kind of in tune to really, you know, help you grow the business and manage it. I personally love this kind of just flat out $25,000 over a 12-month period, essentially just that’s broken down into 12 equal payments.
And you know, if the business making $5,000 a month, you can take that out of the business. And after that 12 months, you don’t have to worry about it, you’re just gonna be collecting some cash. So those are a few good ways to essentially get more business for money that you have in the bank. So let’s say you only had $125,000 in the bank, you’re essentially buying a $200,000 business, but you’re having the seller kind of finance that purchase. So this can be extremely powerful to help you get a larger business than the money that you actually have.
So I love seller financing. But let’s look at a few of the other options. Buccos, which is a great option out there, I actually spoke and had a really wonderful call with the team. Some of the highlights, again, I don’t want to go dig too deep, this really isn’t about the pros and cons of each or comparing each of these.
If this video does get a lot of traction, and you really enjoy it, leave a comment below. And I’ll try to compare and contrast all the different financing options. This is just more of a brief overview of what’s out there. Because a lot of these financing companies have only been around for a year or two. It’s a fairly new industry in the online business acquisition space. So post some of the great things are there’s no personal guarantee, they’re not taking an actual percentage of the business, and there’s going to be flexible repayment, repayment, and fast funding. So pre-approved in 48 hours. And essentially you can get money and funded in seven days. So they already have some businesses on their website that are pre-approved by a few different brokers and marketplaces. So they’ve gone ahead and said, basically, if you’re able to put up some capital, you’re able to really buy this business. And some of the funding options that I saw is if you are looking to fund a $700,000 business, they’re probably going to give you around 60 to 70% of that business in funding, they’re not going to fund 100% of it. So you’re also going to need to get some other approval.
So there is some stuff, you need to put up a pretty big percentage of the funding. So let’s say you’re gonna buy a business, you know, you probably need to put up that extra 30%. And they might fund 70% of it. So in the example that they’ve given me, and they use in their kind of resources is a $700,000 business, you know, let’s say they put up 70%, you put up the rest of that 30%, the interest is probably going to be if you pay it back within a year is going to be $100,000 in interest. So it is quite a hefty interest payment. But it is one of the only options if you’re looking to buy a bigger business. So they do have some flexible repayment. And if you pay early, obviously it’s going to be better than paying over a longer period of time. But the good thing is there’s no penalty for paying early founder path is focused more on SAS founders, essentially, they have a little bit different approach where I think they linked up your actual software, like your stripe or PayPal, and it’s looking at your monthly subscriptions and it’s giving you lending for that. So this is a little bit different, but I think you could still acquire a business and then get funding on it. So maybe if you take a loan out, you could also use this to like repay the loan so you repay the loan to buy the business. I’m not sure if they actually will give you an if they’ll give you an option to acquire business based on this. This capital is because cuz I think it’s one of those things you need to own the business first before you can actually get approved. But it’s very interesting looks like if you do acquire a business and you want to really grow it, you could get some extra capital to implement it to marketing to grow the business pretty quickly.
Let’s see a crew me success base capital for your Amazon FBA business. This is another great funding option. I haven’t looked too deep into this option as well, because I’m mainly focused on digital products and software. But this is another great business. And one of the things that a lot of FBA businesses struggle with is funding. So I’ve talked to so many Amazon FBA sellers who have they’ve maxed out all their credit cards, they’ve taken out small loans from the bank, but they really haven’t been able to figure out the funding options. So this could be a good choice for a lot of the Amazon FBA people they just need more capital to really grow the business. So let’s kind of look at the pros and cons, I kind of mentioned a few of these, but let’s just go ahead and recap. So the government SBA loans, you can get a large amount of money again, they kind of get you in with this to 3 million dollars in SBA funding. But then again, the actual deployment of that capital is really difficult. So that’s why I’ve seen a lot of people waste three to six months of their time. So there is a long and very low success rate of actually getting that money to be used for an online business, the hybrid options are going to be the best option out there because you’re gonna get 70 or 80% of the funding versus seller financing, they’re normally not going to finance more than 20 or 30% at the maximum. So that’s a big pro, as you’re able to get fast. And a big portion of capital for funding, a lot of marketplaces and funding options don’t require a personal guarantee, you’re not putting your house on a lien or something, you’re not using your house or car as collateral, but they are going to have a much higher interest than the typical mortgage or banking loan. But also they’re not going to present 100%, I would say it’s normal from talking with booth pose, probably around 70% of funding, but they do find up to 85%, depending on how much of your Personal Capital you’re putting in. The last one is going to be seller financing, I love this because it’s free financing, and you have a low percentage rate would be the con again, like I mentioned, maybe you’re gonna get, you know, 25 $50,000 of seller financing. And the smaller deal, of course, on the bigger deals, it might go up in amount, but it’s never really going to be more than 1015 20% of the actual deal that is going to be in seller financing some of the bigger deals, it might shift further, you know like if you have a five $10 million deal, it might be you know, $5 million upfront, you know, $2 million in a year, and then the rest paid out over a two year period. Something like that might be a more typical structure.
For the larger deals. It’s really rare on the smaller deals that have a huge chunk in seller financing. But again, I think what’s great is you can kind of take advantage of both the hybrid and the seller financing. So you can get approved for a deal, you can negotiate and try to get some seller financing, and also use one of these hybrid financing options. So I’m curious if you’ve been looking into the space, if you’re looking to acquire or to sell an online business, I actually specialize in this I have an acquisition program where I help people isolate and buy online businesses, I help you find the deal that’s gonna fit what your skill sets are, I help you negotiate a deal. And I also find these deals that have in my mind a lot of growth potential. And that’s where a lot of the ROI comes in as I help you implement a growth plan to grow the business and get your ROI back as soon as possible. So if you’re interested in that, or if you have an online business that you’re looking to exit, I’ll leave a link below to have a free consultation with me where we can talk about what is the best path for you. And again, I do have a very limited amount of spots. So if you’re interested in booking one of these calls, make sure that go ahead and schedule something today. And again, if you liked thi
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