Best way to fund a small business purchase?

[Zigs]

Hi all,

I'm considering purchasing a small business. The asking price is $250K and the company generated $255K in revenue last year and $175K in earnings, which represents a 40% growth YoY. I've done my research on the industry & business risks and I think this is a fair price.

But I don't have access to that kind of cash, so I'm looking into my financing options. My least desirable option is to take out a bank loan and pay high interest. The seller is available to finance part of it, but I'll still need to come up with probably $100K to pay initially. I don't have friends & family available for low-interest loans at the moment. Has anyone experimented with Rollovers as Business Startups (ROBS)? If it's not too expensive, I have available funds in my 401K that I would love to use as part of the acquisition.

Appreciate any advice!

[twe]

Financing priorities as I see it:
1) Seller financed
2) SBA loans - 7(a) Express-350k cap, Microloan-50k cap
3) Personal
4) Passive equity partners

I'm looking for small businesses, and #1 is by far my preferred method (although I do always plan on some level of personal funds as skin in the game makes you more interested), but cobbling together 2 or more of these methods is pretty common.

ROBS is pretty complicated from my research-I thought about it but just not worth it with the other options.

[frugaliknowit]

Not an expert, or even close, but this is what I've read:

1.  Make sure the income figures claimed are the same as what the tax returns say.
2.  Businesses are generally worth 1 times net income.
3.  Somehow make any loan payments to the owner contingent on income being a certain amount.
4.  If the owner never hired anyone, make sure to subtract the cost of a manager from income.

[Fuzz]

I looked at the buy then build book on acquisition entrepreneurship. The author loves SBA loans. Your situation is almost swingable with a zero percent credit card, a little bit of cash, and seller financing--i.e. you take out a $25K cash advance on credit card, and pay the seller the rest out of earnings over 1-2 years. Also the 401K penalty is 10%, which is not the end of the world if you really want to do this. Take out $25K and the penalty is 2500 (and you pay taxes), but if that gets into the biz, and jumps your income a huge percentage, it may make sense.  I would absolutely not pay the 250K in cash, there should be some owner financing portion, or loan, ideally non-recourse.