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.
Can he put up the honey as a liquid asset?
I think you've gotten some good advice in this thread. I don't think it's advisable if viewed solely from an investment perspective; however, if part of your motivation is to help the guy and you're willing to accept the possibility, however remote, that you won't receive some or all of what you're promised, then have at it. Bear in mind, that a lawyer will likely charge you $500 or so to review the paperwork, so you should either tell the borrower that he needs to pay that cost or you need to factor it into your decision.
Don’t loan money to friends, family or people you know.
I hope he doesn’t get stung.
free hiney?
I’d go for that..................
“I think you’ve gotten some good advice in this thread.”
I think so too. (Well, except for gettin some hiney.)
A part of our motivation is to participate in some way in the success of his business.
I expected to receive good advice here. Thank you, all.
Investment opportunity
If you loan money they sign a life insurance policy.
Good returns
You knave!
Money is definitely relative. Some people can lose $10K (or much more) in a day in the stock market. For others, it might represent six months of living expenses.
For me, the investment aspect of this would be secondary, as there are similar opportunities with much less risk and complications with collateral and payment terms. But if I had an interest in the person needing the money, or in the particular business, I might give it a try.
Unless that loan is well under 1% of your liquid assets, in which the investment is meaningless, I would not reco doing this.
You can get >7% right now at Pacific Private Money, secured by CA real estate trust deeds. Not a reco, not affiliated.
I once bought a lifetime membership to a video rental store. So I wouldn’t take my advice if I were you.
“Can you afford to lose some or all of this investment?”
Yes.
Sounds like a sweet deal, the business will generate a lot of buzz.
Go for it
I must have stuned my beeber on that one. Free HONEY
They do feel a little worse about it after they cheat you. :)
An unsecured business loan to a small business, at a rate 0.75% below prime? That is not an “opportunity”. I would pass.
What is your risk in the event of natural disaster (disease, weather)?
As another person asked, what about the principal’s life insurance? Could you get a life insurance policy with you named as beneficiary?
Does he have a written business plan? Does his plan make sense?
And another thing I forgot to mention earlier, do you even know his credit score? His FICO? My FICO is just under 800 (very high) and if I applied for an unsecured personal loan I would expect to pay at least 14-15%. So he’s lowballing you on that too. I have a 6th sense for things like this and my gut instinct tells me that you can kiss that $10k goodbye if you go through with this deal.
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