Starting a Business

So Close . . . Yet So Far

You're buying a business, but your banker won't loan you the full amount--here's what to do.
Magazine Contributor
2 min read

This story appears in the October 2000 issue of Entrepreneur. Subscribe »

Q: I made an offer on an existing business and have been working with a lender to raise capital-but the loan officer only feels comfortable giving me 60 percent of the capital. I have about 20 percent in cash. How can I come up with the balance of the money?

A: Bridging this gap is a problem that's kept many entrepreneurs from turning their dreams into reality. You are a good risk and are buying a profitable business, but given that you're an unproven entity, the bank is naturally going to be conservative with your loan. The existing owner, of course, wants to make a profit from years of labor and isn't likely to lower the price. So what to do?

Many business owners approach venture capital groups and angel investors. Though they're solid options, tapping them requires countless hours of effort on your part to find them, prepare presentations and follow up. Fortunately, there may be another way.

The perfect scenario is to persuade the current owner to take back subordinate debt-in other words, take back a second note behind the lender. The owner wins with the possible tax advantage of deferring capital gains, and you win with an overnight solution to your problem. Of course, we don't live in a perfect world, and the current owner may have already ordered an RV and made reservations at Gatorland-and just wants his or her money. In that case, venture capital funds, clubs and fairs, as well as angel investors, may be the next step. But take the baby step first.

Doug Hood is co-founder of Rainmaker Capital Corp., a capital acquisition consulting firm in Cartersville, Georgia. Co-founder Marilea S. Hood contributes to this column. Send questions or anecdotes via e-mail to

More from Entrepreneur

Kim's expertise can help you become a strong leader, pitch VCs for capital, and develop a growth strategy.
Book Your Session

In as little as seven months, the Entrepreneur Authors program will turn your ideas and expertise into a professionally presented book.
Apply Now

Are paying too much for business insurance? Do you have critical gaps in your coverage? Trust Entrepreneur to help you find out.
Get Your Quote Now

Latest on Entrepreneur

My Queue

There are no Videos in your queue.

Click on the Add to next to any video to save to your queue.

There are no Articles in your queue.

Click on the Add to next to any article to save to your queue.

There are no Podcasts in your queue.

Click on the Add to next to any podcast episode to save to your queue.

You're not following any authors.

Click the Follow button on any author page to keep up with the latest content from your favorite authors.