Nothing like real experience in this biz, and sounds like you have a lot of it.
Curious - do you stay invested? Do you set the model so that owner is eventually buying you out?
What options do have (and steps you take) if the restaurant starts do decline?
Essentially I (with a group of mostly silent partners) provide private term loans with a max payback of 5 years...I have no interest in owning or running any of the various businesses with whom I work.
I got really lucky and had stopped doing most restaurants about two years before covid was in full swing. Never liked the unsecured nature of the business but it performed well for the most part. My last restaurant paid off earlier this year and I haven’t been rebooking in that business after covid, especially since I’ve found other industries I like a lot better.
I did a couple of failed restaurants and doctor’s offices...you pay top dollar for the equipment and 6 months later it’s worth 10 cents on the dollar on the secondary market.
Best case scenario is to help an owner (in any business) to get through a rough patch...as long as we believe they will make it long term. Second best is to find another party to take over the space lease and accept terms to keep the equipment in place.
I work through my own connections and with brokers to sell any repo equipment. Unfortunately when there is a deficiency, I do file a lawsuit to be made whole but as it’s said, you can’t squeeze blood from a turnip. My main goal at that point is to recoup my initial investment, then walk away.
Several years ago I did a small loan of $45,000 to a doctor who wanted an ultrasound machine that printed high-quality pictures. He was making almost a half million per year, had no other debt, and great credit history. After a few months he lost interest because he wasn’t generating revenue with the machine like he thought he would and simply walked away. He actually told me it was my fault because I made the decision to give him the loan.
This was in LA County and after having a couple of other business owners down there (in different industries) just walk away from their equipment, I said it’s not worth it.
In my experience, most people, when they get into trouble, do the right thing and help sell the equipment and/or return it. This approach ensures both of us get top dollar and leaves little deficiency, if any. To have several people in a small area throw in the towel without regard to the consequences made me think, there’s something wrong with their character-—one of the 5 C’s of credit.