Posted on 02/28/2023 7:21:16 AM PST by KingLudd
Hello Over the years, I’ve learned about a lot of things here. What is true is that FR consists of subject area experts on pretty much any topic. I’m always amazed at the depth of knowledge people have here, and their eagerness to share their expertise and experience with those of us who want to learn.
I would like to hear some of your thoughts on a venture my wife and I are considering. We’re interested in investing $10k in the expansion of a nearby business. This would be our first venture outside of bank CDs, 401ks savings accounts, etc.
Someone we’ve known since 2018 is a very successful beekeeper who manages several hundred hives. Some hives serve as nucs, some produce honey and others produce queens. In the off season, he sells honey, candles and bee-related decorations at festivals, bazaars, flea markets and some online. He indicated that his business has grown 130% net from last year and expects to continue that upward trend.
He wants to buy out a local competitor who is selling their beekeeping supply business they’ve owned for 25 years. That bee business was supplemented by a nursery business. The bee/nursery operation is situated on a 1 acre site with electric and plumbing. Our associate intends to buy the bee/nursery business from the current owner, pour a slab and erect a steel building. There is plenty of parking and it is on a main road.
Terms: We loan him $10k. The interest rate is 7% annual. We receive a balloon payment in 3 years (no prepayment penalty) Amortization: Interest only payments Frequency: Quarterly payments.
The current owner of the bee/nursery will hold a first position mortgage on the property. According to our associate, his bees, assets, inventory, etc. are owned free and clear and hold more value than the loan he will take out in case he needs to liquidate to satisfy the obligation.
A couple of things … we own our home, hold no debt, work full-time and are approaching retirement. We support small local businesses whenever possible and believe small business is the engine of our economy. I refer to the person with whom we are considering investing as an associate. He is not a relative and we do not see him socially. He is a family man who knows the Lord and has a strong work ethic. The guy is busy all of the time.
We would have a lawyer review anything before we sign. The concept appears straightforward to me, but I appreciate any thoughts from those here who have experience with a similar situation. On what kinds of requirements should we insist? Thank you.
Sounds like a sweet deal..................
—> erms: We loan him $10k. The interest rate is 7% annual. We receive a balloon payment in 3 years (no prepayment penalty) Amortization: Interest only payments Frequency: Quarterly payments.
No.
You can earn a +7% dividend on closed-end funds currently
You must have security in case he defaults - is he putting up his car, life insurance, his home, etc. to guarantee repayment if he cannot meet his obligation? Not used bee keeping equipment.
Are you prepared to foreclose on that guarantee if he defaults?
If he dies? What happens? Due immediately?
Will his wife agree and sign off also?
Also, I know someone who keeps bees as a hobby/side business, and he has had more than one year where his entire colony collapses and all of his bees die off, and he has to restock his bees.
As Horace Greeley once said; "Go West, young man" but Horace stayed back East and made his fortune by selling young men wagons and shovels.
Value the bee supplies business, don't value the beekeeping.
PS - you are not investing in the business unless you are getting a share of equity and profit.
You are loaning $
If he can get a loan if necessary from a bank, why is he??
If you don’t. I will.
A few years ago, I came to a Bible study late and caught the tail end of a conversation with a guy at church who was starting a business. He had a good contract but needed some cash to buy the supplies he needed.
I cornered him afterward and asked for some details.
He needed $5000 and offered 10% interest for a 1 year loan.
He’s a friend but not really a close friend. It was money I could afford to lose. It was a great thing to be able to use money to bless him and his business. The check for $5500 a year later was just a bonus.
I’ve kept my ears open for other such small opportunities since and haven’t really had any.
You won’t get rich off this but it sounds like a great risk.
I’d add 1 quart of free hiney per quarter over the life of the loan.
in before the “Plastics” reference
Look into your 401k management. I do way better than 7% in mine. Cd’s? What interest rate are you getting for those? I havent seen a CD worth investing in in 30 or 40 years.
You are taking some risk investing with an acquaintance. If things go bad, you can't sue and recover; you can't likely hire a lawyer, win, and recover the $10,000, plus all your legal costs. Then there is the emotional turmoil of legal action.
In any event, don't invest anything you can't afford to lose.
The five percent with a CD is a sure thing. Of course, you are still losing value when you consider inflation.
“The current owner of the bee/nursery will hold a first position mortgage on the property. According to our associate, his bees, assets, inventory, etc. are owned free and clear and hold more value than the loan he will take out”
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How much is the mortgage for and will he have enough cash flow to service the debt? And would the bank holding the mortgage have first dibs on those assets if he were to go under? If he’s promising to secure your loan with his assets then get it in writing, otherwise you are making an unsecured loan to him.
I’d add 1 quart of free hiney per quarter over the life of the loan.
what kind of loan shark are you?
sick
A man from the future told me to invest in Zinc.
“You are loaning $” Correct
$10,000 is nothing. If very successful he would not need to borrow $10,000. As another poster mentioned, there are other investments providing similar returns with little risk now available. Some FDIC-insured banks are advertising one-year CDs at 5%. Is the extra $200 per year (perhaps $125 after taxes) worth the risk and worry?
The current rate for a 30 year mortgage is 6.85% which is totally secured by the real estate. This guy is asking for an unsecured loan at basically that rate even though it carries a much higher risk. Higher risk should come with a higher rate. I would tell this guy to take a hike.
CDs currently 4.2% - no big whoop, but something.
401s all in stocks for 30+ years. Lettin it ride
” ...in before the “Plastics” reference ...”
Smart money’s in plastics for sure. LOL
$10,000 is nothing. If very successful he would not need to borrow $10,000.”
I should have made it clear that he is looking for several lenders including SBA. If the SBA process becomes onerous, He’s going with a loan from the owner of the nursery/bee business and other individuals. Sorry about that.
And the fact that he claims to be a Christian means nothing, my experience doing business with “Christians” is that they were no more trustworthy than anyone else.
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