|
I have owned a brick and mortar business now for 5 years and it has about 10k worth of debt left from a small business loan with all the equipment owned but in a leased building. It's time to move and expand and I've been approached by some people who would be willing to invest some money to help me purchase/cover the down payment for a loan to purchase a building and land as well as cover a few other expenses needed to expand. This wouldn't be our first time moving into a bigger space or expanding, but this is our first time looking to make this type of leap and purchase a building. Total investment they would be putting up at the start would be ~$100k to make this happen. They want to be silent and not involved in any of the day to day activities and it's purely an investment for them as they already have other companies they run/work in daily. My question is, what are my options regarding taking their investment in terms of giving back ownership of the company, paying back just as a loan, etc. What should they get (or at the least their options) for that initial 100k investment?
|
#
?
Nov 8, 2014 17:48
|
|
|
|
| # ? Apr 23, 2024 12:15 |
|
|
You have a lot of options. Before you get to that, getting a loan for a mortgage down payment will be looked down upon by a bank I am pretty sure. I don't know that for certain, so you'll want to investigate that. Going past that, I think the answer to what you should offer in return depends on your cash flow and your goals. Don't think there's enough information for me to hazard a guess at what would be ideal. I will say that if they don't want to be involved in the day to day business, your best option is probably repaying them over time since they aren't bringing anything to the table besides cash....but by the same token, that cash flow drain may not be ideal if you're trying to grow the company rapidly (for instance, if you want another store). A large loan payment in addition to your mortgage payment could be a hindrance, and could be troublesome if you have a seasonal business. The other side of the equation is the risk tolerance & the goals of the other parties. What do they want out of their investment? Either way, sounds exciting to be expanding. Good luck.
|
|
#
?
Nov 8, 2014 19:08
|
|
|
I deal with apartment complexes, but I'd imagine it's going to be somewhat similar. You're going to need to get a lawyer to draw everything up so you can give the ownership percentages to the lender. In that agreement will state who gets what return when sold and any kind of performance metrics. At first, they're probably going to get nothing. An agreeable solution will probably be start doing distributions/payments (depends on how everything is structured) starting in 6 months. It really just depends on whether they want to actually invest in the company, or invest and get a contractually guaranteed 9% return.
|
|
#
?
Nov 8, 2014 22:23
|
|
|
Why does this expansion require ownership of the building?
|
|
#
?
Nov 25, 2014 09:02
|
|
|
Watch shark tank. You are about to get screwed out of your equity.
|
|
#
?
Nov 25, 2014 15:18
|
|
|
An investment means they're buying a share of your future earnings; not necessarily a share of the company. How much do you want to sell 30 years of growth? The best structure would be one in where your investor gets zero equity but winds up with a net profit dividend for a predetermined number of years. In case of runaway success you need to have an early buy-out clause so you can return the $100k to them and the dividend immediately stops. If this is a loan then they get no equity or variable compensation. Just pay principle & interest. $100k is a small amount in the world of banking so there might be an SBA program for just your type of expansion. Good luck and be careful. Since you have a successful business there will be no shortage of "friends" looking to grab a slice for themselves. Even good friends can get greedy.
|
|
#
?
Dec 9, 2014 08:23
|
|
|
|
| # ? Apr 23, 2024 12:15 |
|
|
Appreciate the help everyone. I'll update it in a bit with the direction we are going to get feedback.
|
|
#
?
Dec 9, 2014 14:56
|
|