Unsecured business loan
I need some help with figuring out the appropriate interest rate on an unsecured business loan for flipping.
For a secured business loan from a hard money lender, it seems the going rate is around 18% per year with the property as collateral and the borrower contributing around 20% to 30% of the capital.
And some "lenders" who are willing to put all or almost all of the money have a profit share arrangement in lieu of interest.
Wells Fargo seems to have personal loan rates of around 22% in Arizona.
So what about a lender who wishes to simply lend on an unsecured basis? The lender is willing to lend up to 80% of the cost. (I know you will say that the lender should not lend without security but there is a specific reason for this situation.)
The lender in this case is actually a relative of mine so the negotiations are a little delicate where neither party wants to hard-ball the other and yet both parties want to be fair. The borrower is going to be my new LLC in Arizona.
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I'm paying 8% on the money I borrow from my private network. This is several points above what banks will lend at and well below what hard money costs. To sweeten the pot, I give the lender an equity position on the back end so that their return averages out to 12% or so when annualized over four or five years. This is structured on an installment note as one time installment payment at the end of the loan.
If you PM me I can give you some info on a HML that will lend (they were six months ago) at 70% ARV with very little skin in the game.