I currently own a restaurant that is in operation for 6 years. I'm looking to expand, and have an investor in place. If anyone can give me feedback on a payback plan that would be fair to both parties that would be appreciated. Thanks
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
16y
Is this going to be structured as a loan or as an equity investment? Has the investor given you any hint of the return they're expecting?
As a loan, structure it as either a interest only loan with a balloon, or a fully amortized loan. The first gives you the lowest payments, but has that lurking balloon. If the investor is used to buying bank CDs, this is very similar. A fully amortized loan makes your payments higher, but reduces the interest you pay and avoids the balloon.
An equity investor is going to expect a higher return. There are many ways to structure this. One is to give a preferred return on their money. This is same as the interest only payments on a loan. A second is the return of their capital. Yet another is payouts based on their ownership - a profit split. Yet another is in the form of dividends, like a stock dividend.