We are back with our third (yes, third) post on funding options. What can we say? We like helping get people the money they need to make their dreams come true.
So without further ado, here are seven more ways you can help finance your next business acquisition. (And when you're finished here, go back and check out Part 1 and Part 2.)
Convertible Debt: Before you get too excited, let us clarify we are not telling you to take out a loan for a brand new sports car. (What we're talking about is far less sexy, I'm afraid.) Convertible debt means that you borrow money from a lender with the intent that you'll repay all or part of the loan by "converting it into a certain number of its common shares at some point in the future." If your business is projected to see an increase in its stock's values, this could be a very enticing transaction for lenders.
Rent Deferral: This one only works if you are purchasing a business that requires a brick-and-mortar presence. (Think storefront, warehouse, factory, etc.) It's well worth your time and energy to approach the landlord and request a postponement of rent for a set period of time in exchange for a lease extension or renewal. As the business's new owner, you'll likely want to explore other leasing options - and the landlord knows that. Use it to your advantage.
Sublease Space: Another one that only works if you have a physical property. If the new business you're acquiring has more space than you need, consider leasing out a portion of it to a third party. That's steady revenue you can pump right back into your rent, purchase price, etc.
Royalty Financing: Traditionally, investors lend money in exchange for an equity stake in the business. But with royalty financing, they'll instead receive a percentage of the business's revenue. This is an excellent option if you aren't too keen on giving up any portion of ownership of the company.
Third-Party Guarantee: If you have a loan with the seller but they want some sort of guarantee that you are unwilling or unable to provide, approach a third party to step in. In exchange for interest, equity, or something else of value from you, the third party will pledge to personally guarantee that the loan will be repaid if you are unable to. Sometimes it's good to have a third wheel along for the ride. (And sometimes it's good to BE the third wheel. Being a third-party guarantor for another business can be a lucrative arrangement.)
Fractional Rights: Just as investors can now own a slice of a big-name stock (rather than the whole shebang), that same principle can be used to sell "rights" to your company. Obviously, you don't want to hand over the entire pie, but if someone is interested in a specific fraction of your business (like your email list, for example), you can sell them the rights to it for an agreed-upon amount of time and price.
Angel Investors: These are typically successful individuals with high net worth who are willing to invest their money into a company in exchange for ownership shares. It's a similar process as venture capitalists, except they use their OWN money (venture capitalists risk other persons' money), and the amount they invest is typically lower. Just be mindful of how much equity you're willing to give up in exchange for the cash.
So there you have it. Seven more strategies you can employ to fund your business purchase with ZERO dollars from your pocket. Will there be a part four to this series? Time will tell. Stay tuned.