How To Buy A Small Business With No Money Down

Forbes

Chelsea Mandel and her firm Ascension Advisory are on a mission to help small business buyers borrow a $17 billion a year tactic from private equity’s playbook known as sales leasebacks. But finding the right deal is nearly impossible.  Read the full story on Forbes: https://www.forbes.com/sites/brandonkochkodin/2024/04/22/how-to-buy-a-small-business-with-no-money-down/?sh=30bace386bc8  Subscribe to FORBES: https://www.youtube.com/user/Forbes?sub_confirmation=1  Fuel your success with Forbes. Gain unlimited access to premium journalism, including breaking news, groundbreaking in-depth reported stories, daily digests and more. Plus, members get a front-row seat at members-only events with leading thinkers and doers, access to premium video that can help you get ahead, an ad-light experience, early access to select products including NFT drops and more:  https://account.forbes.com/membership/?utm_source=youtube&utm_medium=display&utm_campaign=growth_non-sub_paid_subscribe_ytdescript  Stay Connected Forbes newsletters: https://newsletters.editorial.forbes.com Forbes on Facebook: http://fb.com/forbes Forbes Video on Twitter: http://www.twitter.com/forbes Forbes Video on Instagram: http://instagram.com/forbes More From Forbes:  http://forbes.com  Forbes covers the intersection of entrepreneurship, wealth, technology, business and lifestyle with a focus on people and success.

Transcript

00:00 Here's your Forbes daily briefing for Tuesday, April 30th.

00:05 Today on Forbes, how to buy a small business with no money down.

00:11 According to the U.S. Small Business Administration, this final week of April marked National Small

00:17 Business Week.

00:18 It's a time to celebrate the role of small businesses in the U.S., all 33 million of

00:23 them.

00:24 Despite the so-called "small" tag, these businesses are a big deal.

00:29 They account for about 40% of the U.S.'s $27 trillion gross domestic product and, even

00:35 more importantly, are an essential part of the American dream.

00:40 For proof, one only needs to consider the success of ABC's Shark Tank, now entering

00:44 its 16th season.

00:46 In fact, a 2023 survey by Inkfile found that 90% of Americans dream of being their own

00:52 boss, and three-quarters already have a business idea they're itching to start.

00:57 However, money is the big barrier to entry, according to Inkfile's survey, which shows

01:02 that finding the funds to kickstart or buy a business is the top challenge for half of

01:07 those surveyed.

01:09 Chelsea Mandel, the founder and managing director of Ascension Advisory, believes she has a

01:14 novel solution to the seemingly insurmountable challenge of funding small businesses.

01:20 Mandel has gathered a sizable social media following, preaching the virtues of "sale

01:25 leasebacks," a clever financing technique typically used by sophisticated institutional

01:30 investors in billion-dollar transactions.

01:34 On LinkedIn, Mandel has more than 27,000 followers, and on X another 8,000-plus.

01:40 Her firm, Ascension, not only hosts a podcast devoted to leasebacks, but also offers email

01:46 crash courses like "102 Acquisition Financing Utilizing Sale Leasebacks."

01:53 So you might be wondering, what's a sale leaseback?

01:56 In a sale leaseback, a business sells some of its assets, like property or equipment,

02:01 and then rents or leases it back so that it can continue operating as it did before.

02:07 In some ways, it's similar to a home equity loan, in that it effectively unlocks potential

02:12 cash tied up in the value of the assets that can be used for growth or other investments.

02:18 It also offers tax benefits, including certain deductions for the seller, who is now effectively

02:23 renting the business it just sold.

02:26 Mandel's strategy is simple.

02:28 Time it right, and a business buyer can use a sale leaseback to finance the purchase by

02:33 leveraging the property that comes with the business.

02:36 In this way, according to Mandel, a new buyer is simultaneously acquiring a business and

02:41 selling the property it owns to an investor who will receive rent from the buyer, who

02:46 embarked on the entire transaction without putting up any initial capital.

02:51 Brian Dennis, the founder of Dennis & Co., is one of Mandel's success stories.

02:57 Dennis & Co., which owns 15 dealerships including Chevrolet, Dodge, Chrysler, Infinity, and

03:02 Kia, mostly around New York City, added a new location to its portfolio last year without

03:08 putting any money down by executing a sale leaseback with Ascension Advisory's help.

03:14 Dennis purchased a dealership where just the real estate was valued at $20 million.

03:19 The whole package—real estate, dealership operations, and other assets—was being sold

03:24 for just $17 million.

03:27 By arranging a sale leaseback, Dennis managed to cover this entire cost of the acquisition.

03:32 He says, "We were able to cover the lion's share of the acquisition just by leveraging

03:37 the property.

03:38 Using sale leasebacks provides the lowest cost of capital.

03:41 When you go into a deal, it's inherent that you look for sale leaseback opportunities.

03:46 We've done three of them so far."

03:50 Sale leasebacks are nothing new.

03:51 They are commonly used in commercial real estate and by private equity firms.

03:56 According to New York's SLB Capital Advisors, there were more than $17 billion in real estate-based

04:01 leaseback transactions in the U.S. in 2023.

04:05 VICI Properties, a real estate investor focusing on "experiential" properties, laid out

04:12 $776 million in Q4 2023 alone for leases including Manhattan's Chelsea Piers and 38 Bolero bowling

04:20 alleys.

04:22 Mandel believes wannabe small business owners—sometimes called "acquisition entrepreneurs" or "searchers"—should

04:29 be considering this creative, no-money-down financing to leap into business ownership.

04:34 She warns, though, that finding a target company that will pay for itself isn't easy.

04:39 She says, "We say finding a deal where you can finance the whole acquisition through

04:44 a sale leaseback of the target's real estate is like finding a needle in a haystack, but

04:50 the opportunities are out there."

04:53 For full coverage, check out Brandon Cocodin's piece on Forbes.com.

04:59 This is Kieran Meadows from Forbes.

05:01 Thanks for tuning in.

05:02 [music]

05:11 [MUSIC]

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