- February 12, 2018 at 7:46 pm #161978
Here’s a question we recently received in our comments section that would take too long to answer there:
Hey guys my name is Michael, I’m 34 and I manage a hardware store . I’ve been doing this for the last 5 years and have worked there for a total of 10 years . I am looking for as much help as I can get to acquire the business. Where do I start ? Lots of people tell me because I am a minority, there are plenty of options? Lets start with the loan. Let’s say the purchase price will be 1.5 million … I know I need skin in the game but can only offer 20k cash , have 50k in 401k, and have about 150k in home equity . What’s do I do? Are there grants ? The business is successful, profitable,turn key. Owner ready to retire . Wants to get this started . I appreciate any input . Thanks in advance!!
I’m glad you’ve brought this question to us as it sounds like you have a great opportunity in an industry you’re very familiar with. The first thought for your situation is that you should aim for an SBA loan. You didn’t mention your personal credit score but you’ll need to be a prime borrower with a 680+ credit score to typically qualify for an SBA loan. With a $1.5 million purchase price you’ll need at least $150k to put down, plus you might want to consider having some working capital to get off the ground the first week or two after you take over.
You can use the $50k in your 401k for business purposes, if you wish, through a Rollover for Business Startups (ROBS). This situation allows you to get access to all of these funds without incurring normal taxes or fees that you would generally incur during a loan or cash out. ROBS can be used for any business expense, including as a downpayment for an SBA loan.
You can get access to the equity in your home by doing a home equity loan, or by refinancing. Home equity loans are typically less expensive than refinancing over the course of your repayment period because it doesn’t raise the interest rate on your current house payment. You could also sell your house, but I’m guessing you don’t want to do that if you don’t have to.
Those transactions could get you access to nearly $200k (minus some fees) plus the $20k in cash you already have to put down. That is enough to get a loan for $1.5 million from an SBA lender, if you and your business qualifies. The business needs to be profitable and you need to have strong credit without any recent negative credit events (like bankruptcy).
There are also some business grants available for minorities, but these can take awhile to get and aren’t necessarily focused on helping you buy a business. You can check out what’s available by reading our article on minority business grants.
Good luck to you and I hope you let us know how it goes!
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