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.
$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.
Can he put up the honey as a liquid asset?
Don’t loan money to friends, family or people you know.
Investment opportunity
If you loan money they sign a life insurance policy.
Good returns
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.
Sounds like a sweet deal, the business will generate a lot of buzz.
Go for it
An unsecured business loan to a small business, at a rate 0.75% below prime? That is not an “opportunity”. I would pass.