How To Buy A Company with No Money Down

Think private equity is the only way to buy or sell a company? Think again. After 15 years of helping everyday business buyers close their first deals, Elliott Holland of Guardian Small Business Acquisition Services has perfected the playbook on alternative buying strategies.

The Harvard Business School alum recently joined for a bonus episode of The Business of Tech , where he walked me through actionable steps anyone can take to execute their first purchase — sometimes without investing any of their own money.

From due diligence to networking with investors, here’s what Holland wants you to know.

Holland’s Alternative Buying Options

As more everyday people look to buy businesses, Holland's outlook on buying companies is on the rise:

“Everyone from 25 to 55 leveraging an SBA 7A program that is 90% government-backed debt you can get at the local bank in your city and leveraging that platform to do deals that are up to $10 million in the purchase price. These deals are getting increasingly popular, and it's a very exciting space to know more about.”

So how can folks go about this without PE? Holland shared two other options.

First, independent sponsors. These are people who usually have a background in PE, but now operate independently.

Second, Entrepreneurship Through Acquisition. Known as ETA, search funds, or self-funded search, this pathway involves everyday people leveraging loans from local banks. 

What to Know Before the Purchase

Holland’s expertise lies in due diligence (he even authored the due diligence chapter of Closing the Deal). So what do business owners need to know before pursuing this path?

His first piece of advice is simple: don’t trust anything.

“When people are selling businesses for three to 10 times EBITDA, it's one of the highest motivation times for people to lie,” he said.

Even if you think you know enough about accounting to vet a purchase, he believes that everyone needs to bring in help. And not just for the financial piece — the business, commercial, and operation sides all warrant scrutiny from a team of advisors.

To execute this advice, Holland recommends starting with the quality of earnings. This is a mini audit to ensure the cash flows are accurately reported. It is also a chance to examine other elements like who the company’s decision-makers really are, how well they communicate with their market, and how they create leads and customers.

Breaking Down the Buying Stages

So what does this tangibly look like in practice? Here’s how Holland walked me through the potential stages of a theoretical purchase. To bring this to life, he used buying my podcast business as an example.

First, the buyer would send me a letter of intent (LOI), which is basically an offer letter with their desired price, structure, and timeline. I might get 10 or so letters, so I’d negotiate and select the best one.

Either before the LOI is sent or during this time, I (as the seller) would get a business broker and, in Holland’s words:

“Put together what's called a confidential information memorandum, which is a 10 to 30 page memo on the business meant to maximize the value that buyers are willing to offer for the business. If there's no broker in the situation, then what you probably would have sent the buyer are one or two years of taxes and one or two years of financial income statement balance.”

Because the buyer would be making an offer with this limited amount of information, after signing an LOI, it would trigger the formal due diligence process where the buyer gets to ask almost anything they want.

You generally have 90 to 120 days to close a small business acquisition (meaning deals under $10 million), so buyers typically receive the requested information within a week of the LOI signing.

If I were only flirting with the idea of selling, it’s also possible for this process to begin before an LOI is sent. In this scenario, a buyer would kick things off by asking if I’ve ever thought about an exit or transition plan for the business (or some other congenial way of starting the convo, depending on how well we know each other).

Even if I weren’t interested in selling, I’d likely ask for a ballpark figure of how much the buyer is willing to pay. To answer the question, the buyer would ask to see some financials or taxes, which could be shared a bit more informally – as long as we sign NDAs beforehand.

The process can be both formal and informal, but the key on both ends is transparency surrounding financials.

No Money Down?

I asked Holland to explain his whole ‘acquiring a business with no money down of your own’ premise. Though it sounds too good to be true, he assured me he’s not pitching snake oil here.

Let’s say a buyer and a seller have agreed to a potential sale price. The buyer leverages the SBA 7A program, which has the government put up 90% of the capital, and the buyer is responsible for raising 10% of the capital.

To get the remaining 10%, Holland recommends turning to the growing ecosystem of independent business buyers who know that because the SBA is backing 90% of the debt, the equity return is juicy. So, start by cultivating relationships (through forums like LinkedIn), and once the rapport is built, offer a portion of the business in exchange for them putting in the 10%.

“The typical split is about 70% of the common equity goes to the entrepreneur buying the business. 30% goes to the equity investors to put in 10%. And the equity investors, on top of their 30%, get a preferred return. So each year, that investment that they made ticks off like it was debt and gives them a bit of a cash payment,” he said.

I asked what these types of investors might expect in return, and Holland explained that to them, it’s almost like a mortgage on a business. As long as you have enough general know-how to operate the business well enough to pay off the debt, the investors still get a reliable return.

But you obviously want to give them a bit more than that. So, as you put together your pitch, explain your plan to grow the business — modernizing systems, improving CRM, bringing in AI, etc.

“So I'm going to put all these things in a plan and deliver the plan to the investors. And they're going to say, first off, do I think this dude can pay off the debt? Second, do I think he can execute some portion of this plan? If those two things make them feel comfortable, they'll put their money,” he said.

Common Mistakes + How to Avoid Them

What mistakes do people on this path make? I asked Holland for some advice here.

First, as he flagged earlier, one of the biggest mistakes is not performing a quality of earnings or financial audit on a prospective purchase. There’s not that much small business regulation to keep their paper trails in check, so you’ll need to be extra cautious here.

Second, when evaluating a business in person, don’t just go through your list of predetermined questions. Keep things conversational and follow your instincts as you ask questions and get to know the organization.

Third, only accept official documents. A QuickBooks report should have the QuickBooks header on it, and HubSpot CRM data should have HubSpot logos on the top and bottom. Any evidence of data manipulation is a major red flag, so stick to the verifiable docs.

I also asked how much cultural alignment matters here, and he estimated it should be about 20-25% of your considerations. He said the more important factor here is whether you have experience in the industry you’re attempting to buy.

Finally, in case you’re curious, Holland confirmed that all of the above advice applies to mergers as well.

For more from Holland, visit www.GuardianDueDiligence.com or find him on X, YouTube, or LinkedIn by searching Elliot E. Holland.

Have you managed to buy a business without PE? As always, my inbox is open, so feel free to share your stories, questions, or whatever else is on your mind.