Tom West, inc.com's Buying a Business or Franchise mentor, responds to the following question from an inc.com user:
I own a billing service company and have the opportunity to buy an 8-year-old electronic billing service with annual revenues of $800,000. Here' s my dilemma: I' m not yet worth that amount of money, and I find that a lot of venture capitalists don' t dabble in financing deals this small. What are my options?
Tom West responds:
You' re right. Most venture capitalists are not interested in investing in very small businesses, and even if they were interested, they probably would want a partial (even substantial) ownership stake in your business.
If you feel that this acquisition is an attractive one -- an opportunity you just can' t pass up -- I would encourage you to explore all of your options. Think about approaching your friends, members of your family, suppliers, and even customers. They may be able to help you get to the next step, whether that next step is securing funds or making new connections. Consider loans guaranteed by the U.S. Small Business Administration. I find the SBA is more user-friendly than it used to be.
Your best bet, however, could be to work out a deal with the owner of the other firm you hope to acquire. Perhaps you could contribute a small down payment and ask the seller to finance the balance? (See my answer to another inc.com user question: How do we propose an owner financing plan to a business owner?) It's possible you could generate enough cash to offer the seller an attractive accelerated payment plan.
In any event, it sounds like you have enough experience in your business to have a good chance of finding financing or working out a suitable plan with the owner of the other business. One first step should be to talk to your local banker and see what he or she suggests. Some banks are willing to loan money for acquisitions, but don't get your hopes up too high.
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