Ever Lend Money to Businesses?

[Rerun]

Anyone have experience lending private money to small businesses (not Prosper/Lending Club)?

One of my mentors shared an opportunity to help a business out by lending them some short-term cash, which is an area that is very interesting to me. I always like the Jay Abraham/The Profit approach to helping businesses for a piece of the pie. While this is purely just a lending situation, I like the idea of getting my feet wet with this type of deal making.

Before I dive too deep into doing my DD and racking up attorney fees, does anyone have any advice on structuring these types of things? I'm sure every situation is different, but any general tips on how to protect myself, terms to make sure are included, etc would be helpful.

Here's the basic background of the situation...

This is a seasonal business that booms in the winter and is dead otherwise. They are a stable, profitable company that has been around for 30+ years and continues to grow. They recently made a $5M+ investments to improve their infrastructure, which should greatly improve revenues. These improvements went over budget and now they're looking for low six figures to be comfortably prepared for their seasonal rush. They could make due without the cash, but having it would make things much less stressful.

I looked at their books for the past three years, and basically they typically produce enough gross revenue to pay back the loan with less than a single day's volume during peak season.

My mentor personally vouches for the owner and the business, so that combined with their financials seems to put this in a somewhat low risk situation. Of course who know what could happen or what may really be going on in the background that could cause them to file bankruptcy of something. From the front, everything seems pretty up and up.

Any tips to consider on how to structure this to have some leverage here if things go south?

 

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[amp0193]

Your post sounds like you've already made up your mind. Time-tested, reputable, stable, profitable. Give it a shot after some more due diligence. The question I'd most like to ask, is why they need your money in the first place, and why they can't (or are choosing not to) get it elsewhere.

Recently did this same sort of deal, knowing there'd be some risk, and it all worked out as planned. I'm in the works of setting up some more deals with the same small business. I used a pretty standard loan agreement, and we had it signed at a notary, but I'm sure there's more binding ways to create more leverage for yourself. My deal was with a business that I already knew on a personal level, so there was a level of trust already in place.

Let us know how it goes, I'm interested in doing more of this type of thing and I'd like to hear other's experiences.

 

[DeletedUser2]

there are also syndications that do just this kind of lending. (payday loans for biz) and they do pretty well. some very attractive rates.

I have lent money out, bought debts, and play in notes.

biggest thing.

due your due diligence. if you are comfortable, then go in knowing, like any investment, it may lose money.

and know what your security is.


Z