No money down, and other things that do not happen
The rules are published. In the US you need ten percent, half of which can be a seller note frozen for a decade. Here is where the money really comes from.
Buying a business with none of your own money is not a technique that lenders have overlooked. It is a thing the rules specifically prevent, and the rules are published, free, and unambiguous. In the United States you need ten percent of the total project cost, and at most half of that ten percent can be a seller note that pays nothing for a decade. The rest is real money.
What the pitch actually claims
The story has a consistent shape. Somebody finds a retiring owner, structures the whole price as a seller note, uses the business's own cash flow to pay it, and walks away owning a company having contributed nothing. Sometimes there is a variant where a lender covers everything, or where investors fund the equity and the buyer keeps a large share for finding the deal.
Each version contains something true, which is why it works as a pitch. Seller financing is real and common. Investor equity is real and is how most acquisition entrepreneurs actually do this. What is not true is the conclusion drawn from those facts, which is that the buyer contributes nothing and bears no risk.
The reason to be precise about this rather than dismissive is that the useful techniques get discredited along with the fantasy. Seller notes, earnouts and subordinated instruments are genuinely how small companies change hands. An owner who dismisses all of it because the loudest version was nonsense has thrown away the actual toolkit.
The rules, as written
In the United States the main route for buying a small business is a Small Business Administration 7(a) loan, and the operating procedure that governs it, SOP 50 10 8, took effect on 1 June 2025. It is explicit.
A change of ownership requires a minimum equity injection of 10 percent of total project costs, and total project costs means everything required to complete the transaction regardless of where the funds come from. A seller note can count toward that 10 percent, but only on full standby, meaning no principal and no interest paid for the entire term of the SBA loan, typically ten years. And even then the seller note cannot exceed half of the required equity.
The arithmetic on a one million dollar deal
Total project cost $1,000,000. Minimum equity injection at 10 percent is $100,000. A seller note on full standby can cover at most half of that, so $50,000. Which leaves $50,000 of genuine cash that has to come from the buyer or from investors who are themselves taking real risk. Not zero.
Notice how much the standby condition asks of the seller. To have their note count as equity, they must accept no payments at all for ten years while a bank sits ahead of them, formalised in a standby creditor's agreement that subordinates their claim. Sellers do agree to this. They agree to it far less often than the pitch implies, and never as a favour.
The reason becomes obvious once you price it from their side, which almost nobody writing about this does. A note paying no principal and no interest for ten years is a zero-coupon instrument. Fifty thousand dollars arriving in a decade is not fifty thousand dollars, and how much less depends on what the seller could otherwise do with the money:
| If the seller could otherwise earn | That $50,000 is worth, today |
|---|---|
| 5% | $30,700, or 61 cents on the dollar |
| 8% | $23,200, or 46 cents |
| 10% | $19,300, or 39 cents |
| 12% | $16,100, or 32 cents |
So a seller asked for a fifty-thousand-dollar standby note is being asked to accept somewhere around twenty thousand dollars of real value, and to carry the risk that the business fails in the meantime and they receive nothing at all. That is before considering that they rank behind the bank if it does.
The full-standby seller note is not financing. It is a discount on the price, written in a way that lets it count as somebody's equity.
Which is the honest way to read it, and it cuts both directions. A buyer asking for one should understand they are asking for a price reduction and should expect it to be negotiated as one. A seller being offered one should convert it to present value before comparing offers, because a headline price with a large standby note inside it can easily be worth less than a lower all-cash number. That comparison is the same arithmetic that decides whether a financed offer beats a cash one, and it is routinely done wrong in the seller's disfavour.
None of which means a seller will never agree. Some do, and when they do it is worth understanding what has actually happened: a seller who will take nothing for ten years while a bank gets paid first is not doing you a deal, they are making a large and specific bet on you personally. That bet is available to buyers who have earned it and to almost nobody else, which is the part the pitch leaves out.
The 2025 rules also tightened this compared with what came before, which is worth knowing if you are reading older material. Structures that were possible under the previous procedure are not possible now, and a good deal of the content circulating on this topic describes a regime that no longer exists.
Outside the United States
The specifics change and the principle does not. There is no direct equivalent of the SBA programme in most of Europe, so acquisition finance comes from commercial lenders, asset-backed facilities, and vendor loans, each with its own view on how much of the buyer's own money it wants to see.
Germany is the interesting case because it has something closer to the American model. The state development bank runs a subordinated capital programme designed to function as an equity substitute for people taking over a business, alongside a general succession credit facility of up to half a million euros per applicant. On paper it is possible to finance a takeover without contributing your own equity.
In practice, banks arranging the surrounding debt typically still want to see ten to fifteen percent in genuine own funds. So even where a formal zero-equity route exists, the market puts the requirement back. That is not bureaucratic obstruction. It is lenders responding to the same thing the SBA rule encodes: a buyer with nothing at stake behaves differently from one with their own money in it, and everybody financing the deal knows it.
Where the money actually comes from
Strip out the marketing and there are four sources, and almost every real transaction is a blend of them.
Your own money
Always some, rarely all. Its function is not to fund the purchase, it is to demonstrate to everybody else lending into the deal that you lose something if it fails. That signal is what the ten percent rule exists to enforce.
Bank or programme debt
The largest slice in most deals. It is secured, it is senior to everything else, and it comes with covenants that constrain what you can do afterwards. Cheap money that reduces your freedom is still a real cost, just not one that appears on the price.
A seller note
The seller lends you part of the price and gets paid out of the business over several years. Genuinely common, genuinely useful, and the closest thing to the pitch that actually exists. What makes it work is that the seller believes in the business and in you, not that they were outmanoeuvred.
Investor equity
How most full-time acquisition entrepreneurs really do it. Somebody else funds the purchase and you earn a meaningful share by finding the deal and then running the company for years. That is not no money down. That is being paid in equity for labour, which is an ordinary and honourable arrangement.
The fourth is the one the pitch quietly borrows its evidence from. Search funds are financed almost entirely by outside investors, and the buyer does end up owning a substantial share of a company they did not personally pay for. All true, and it comes with an investor group that screens your deals, sits on your board, and can remove you. Describing that as buying a business with no money down is accurate in the same way that describing a mortgage as free housing is accurate.
Why the honest structures are better anyway
The interesting turn is that the boring version is not a compromise, it is the superior arrangement, and this is where the debunk stops being negative.
A seller who holds a note stays interested in the outcome. They answer the phone in month four when something you did not understand turns out to matter. They introduce you to the customers properly, because their remaining money depends on those customers staying. A seller paid entirely in cash at completion has no reason to take your call, and their knowledge, which is a real part of what you bought, walks out with them.
The same logic applies to your own contribution. Equity in the deal is not a tax on your enthusiasm, it is what makes the seller comfortable, what makes the bank comfortable, and what makes you slow down and check the numbers a third time. Deals done with nothing at risk are, predictably, done with less care, which shows up in the outcome distribution rather than in the pitch. Roughly a quarter of tracked acquisitions lose money, and nothing about a clever structure improves that.
What to do with this
The practical position is straightforward. Assume you need real money, in the region of ten to fifteen percent of the transaction, either yours or somebody's who trusts you enough to provide it. Treat seller financing as a serious tool for the rest, and negotiate it on its merits rather than as a trick. Read the current rules yourself, because they change and because most of what is written about them is out of date.
And apply a general filter to anybody selling a system for this: the person describing a structure that removes all of their risk is describing something a professional lender has already thought about and specifically prohibited. Those rules exist because the structure was tried. How seller notes actually work from the buyer's side is in seller financing, explained by a buyer, and if you are the one selling and wondering what a financed offer is really worth, read the present value rather than the headline. What I will and will not do on structure is on the buy page.
The short version
- US SBA rules effective June 2025 require a 10 percent equity injection on a change of ownership, and a seller note only counts toward it on full standby for the whole loan term and for no more than half the requirement.
- On a one million dollar deal that is fifty thousand dollars of genuine cash at absolute minimum.
- Price the standby note from the seller's side: $50,000 paid in ten years with no interest is worth about $19,300 today at a 10 percent discount rate. It is a price reduction wearing the costume of financing, and both sides should negotiate it as one.
- Germany has a subordinated capital programme that works as an equity substitute, and banks still typically want ten to fifteen percent in real own funds anyway.
- The four real sources are your money, senior debt, a seller note, and investor equity. Search funds lean on the fourth, which is being paid in equity for years of labour, not buying something for nothing.
- A seller holding a note keeps answering the phone. That is worth more than the financing.
Questions I get on this
Can you buy a business with no money down?
How much of the price can a seller note cover?
What is a full-standby seller note actually worth to the seller?
Do you need your own capital to buy a business in Europe?
US rules from SBA Standard Operating Procedure 50 10 8, effective 1 June 2025, governing equity injection and seller-note standby treatment on changes of ownership. German programmes are the KfW ERP subordinated capital facility for start-up and succession and the ERP-Förderkredit Gründung und Nachfolge (077). Rules change; check the current version before relying on any of this.