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I have an acquaintance who is opening a business and is looking for some help to get over a $10K hump. He has approached me for the money... and I like the business idea and plan and think there's potential. He's 100% dedicated to the business and I know his worth ethic and drive so I'm confident he'll see everything through. I'm actually the one to suggest to him to look for investors.
My question is in a setup like this what kind of arrangement should I attempt? Just do a loan and get my money back with interest? Try and get an equity stake and get money for years to come, but I'm not sure how money is distributed or when in this setup? Or some other option?
I'll probably get him the money but if I can't figure out the equity vs partnership vs I don't know what other kind of arrangement aspect... I'll just go with a loan but I want to see what would make more sense for the long haul if as I suspect this business flourishes.
I hate to sound pessimistic but if the guy can't raise a very small amount of cash (under $10K), then how could he be trusted to be running a company?? My personal experience with people has been - if they don't have a reserve of cash stored away as emergency money, then they likely are not very good with money. Maybe this guy is just one of those left brain types who has great ideas yet can't balance a checkbook.
Also, is he a friend? I would never get into such a situation with a good friend. It's a friendship killer. Every. Single. Time.
I have an acquaintance who is opening a business
and is looking for some help to get over a $10K hump. He has approached me for the money...
Can you afford to lose the $10,000?
Quote:
...what kind of arrangement should I attempt?
I'd suggest limiting your cash to buying hard assets titled in YOUR name...
that can in turn be loaned or loaned or leased to him PERSONALLY... not in the business name.
Things like office equipment or other fixtures, even inventory, that if/when the bottom drops out can be recovered
and sold for at least some of your investment and in the mean time will yield a monthly lease payment.
But absolutely not to provide cash for general operating funds.
I think some additional info is needed to assess this situation.
What is the money going to be used for?
Is the business going to need more capital in the foreseeable future?
Are you going to participate in the business?
How much total is being raised, what are other investors looking for (equity vs. debt, debt w/warrants)?
Will your acquaintance be drawing a salary?
If it was to be structured as debt, when would you reasonably expect repayment?
Any expectations that the business would be sold in 5 - 10 years?
Would you anticipate raising funds from a VC or private equity fund in the future?
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