Using Other People's Money to Buy a Business: What You Need to Know Before You Sign
Most people assume buying a business requires a lot of their own cash. It doesn't have to, but there are big trade offs. Using other people's money - loans, investor capital, seller financing - is how many acquisitions actually get done. But borrowed capital is still capital you owe back, and that changes things in ways first-time buyers often underestimate.
"OPM" - other people's money - gets thrown around a lot in acquisition circles, sometimes as though it's a magic trick. It isn't. It's a financing strategy that can work very well when the deal is solid and the structure makes sense, and can cause real damage when those conditions aren't met.
We see both outcomes at Team Rise. Here's what actually separates them.
Why buyers use OPM
The core appeal is simple: you control more with less of your own money at risk. A buyer who puts $200K of personal capital into a deal structured with $1.8M in outside financing controls a $2M business. Done correctly, that business throws off enough cash to pay the debt and still put money in the buyer's pocket.
That's the concept. In practice, the benefits break down into a few specific things worth thinking about separately.
Buy bigger, sooner: Leverage lets you acquire businesses that would take years to save for outright. You're buying today's cash flows with tomorrow's repayments. But, this assumes you can source a deal that fits these parameters.
Keep cash in reserve: Going all-in with your own money leaves no cushion. Retaining liquidity means you can handle surprises - a bad month, a broken piece of equipment, an opportunity to expand.
Better return on equity: When the business earns more than the cost of borrowing, leverage improves your ROE. A 15% return on a $2M business matters more when you only put in $200K.
Debt interest is deductible: Interest payments on business debt are generally tax-deductible, which lowers your effective cost of capital. Worth modeling with your accountant before finalizing a deal.
Seller financing deserves a specific mention. When the seller agrees to carry part of the purchase price, often at rates below what a bank charges, you get flexible terms, lower upfront cash requirements, and a seller who's somewhat incentivized to see you succeed.
Where it goes wrong
Leverage amplifies outcomes in both directions. When the business doesn’t do well, you still owe the money, and that pressure compounds fast.
These are the failures we see most often:
One slow quarter breaks everything: Debt service doesn't pause because revenue did. A single rough period can create a cash squeeze that forces cuts to staff, marketing, or maintenance that make the next quarter worse. It can make a tough spiral even worse.
Losses don't stop at zero: Equity investors lose their stake when things go wrong. Debt holders get paid back regardless. If the business fails, you owe lenders whether or not the business is still running. If you’ve given a personal guarantee (especially in an SBA loan), be prepared for a lien on your house or assets.
Personal guarantees are real: Most lenders - whether SBA or seller financing - require a personal guarantee on small business loans. Your home, savings, and other personal assets can be on the hook if the deal unravels. Read every line of that agreement.
Investors change the dynamic: Equity investors often want governance rights and approval on major decisions. You may find yourself running the business on someone else's timeline, and it can feel like having a boss again.
What to check before you use OPM
The deals that work are the ones where the numbers were stress-tested before signing. A few things we run through with every client:
Does the business generate enough free cash flow to cover debt service with room to spare? A 1.25× debt service coverage ratio is a common minimum — we prefer 1.4× or higher for first-time buyers, and the SBA does too.
What does the deal look like if revenue drops 20%? If that scenario breaks the math, renegotiate the structure before signing, not after.
What's the all-in cost of capital? Compare interest rates, fees, equity dilution, and total repayment, not just the monthly payment.
Do the loan terms give you flexibility? Prepayment rights, interest-only periods, and covenant structures matter more than most first-time buyers realize until they don't have them.
What's your exit from the debt? Whether it's cash flows, a refinance, or an eventual sale, know the plan before you sign the note.
Common questions
What types of OPM are used to buy a business? The most common are SBA 7(a) loans, conventional bank financing, seller financing (where the previous owner carries part of the purchase price), and private equity or investor capital. Many deals use a combination — a bank loan for the majority, seller financing for a portion, and buyer equity for the rest.
How much of my own money do I need? It depends on the deal structure and lender requirements. SBA loans typically require 10–20% from the buyer. Some seller-financed deals can be structured with very little down. Make sure you have enough if things don't go to plan.
Is using OPM to buy a business risky? Yes, but so is not using it if it means waiting years longer to acquire a business, or acquiring a smaller one than you could manage. The risk is in the structure and the deal quality, not in leverage itself.
What's the difference between debt and equity financing for a business acquisition? Debt (loans) gets repaid with interest, but you keep control and ownership. Equity (investors) doesn't require fixed repayments, but you give up a share of the business and often some decision-making authority. Most acquisitions involve some of both.
The short version
Using other people's money to buy a business is a legitimate strategy. Private equity firms do it at scale. Individual buyers do it every day through SBA loans and seller financing. The structure isn't the problem, the issue is buying a business that can't support its own debt load.
If those conditions aren't met, the structure will tell on you fast.
Ready to work through a deal structure? Team Rise Consulting helps buyers evaluate acquisition financing: from deal sizing and debt modeling to term negotiation and due diligence. If you're trying to figure out what structure makes sense for a specific deal, that's exactly what we do. Reach out to start a conversation.