private lending

3 Replies

i'm thinking lending to people who buy wholesale and rehab for a percentage of profits. however, i'm concerned about usury laws. does anyone know anything about usury laws in ohio?

thanks

jim

You are somewhat mixing a loan with an equity stake. It can be messey if you do not get the paperwork correct. Then again that is not what you were aksing about.

Usuary is generally not applied to commercial loans. Commercial loans are made to companies (sometimes individuals) and they would be for properties that are not going to be the borrower's residence.

You need to check the mortgage brokerage laws to see if you need to register with the state. Again, commercial loans normally do not fit the mortgage brokerage rules in most states so no registration is needed in most states.

I have funded a number of loans. If you want to discuss the details send me a message so we can talk about the finer points offline. There are certain things that are best not left on a public website.

John Corey

a bar that has been going for well over 20 years. The current owner has owned the bar for 7 years. He has offered to sell the bar to my wife for $110,000. It is a small bar but has plenty of regulars. The yearly gross is about $135,000. The owner does have other income and is just tired of running the bar. He owns the bar free and clear. There are no tax liens etc on the property. The problem is that my wife has no commercial credit. She also has sat down with the guy who is managing the bar for the owner. The following figures are rough however this is it:

$135,000 gross
$ 96,000 this is wages, bills, and the owner's expenses(he uses the bar as a piggy bank) food etc...
$65,000 is the actual bar expenses per year if you take out owners use.
The past 3 years of taxes can be made available to my wife.

The bar has a supper club with it, which is not being used to potential, example: brand new chicken roaster sitting!

The owner also refuses to expand in bringing in new alcohol, new music, more gambling machines, or new events. this would probably bring in $50,000 more each year.

MY main question would be, do you know of any investor or money lender that would be willing to lend money on a bar like this? One other thing, my wife and I have plenty of money for living expenses, just not enough to buy a bar with.

Thanks Mark

Mark,

1. You are buying a business more than you are buying real estate.

2. The best source of funding a business is the seller of the business. They know the numbers. They know what should be possible. Consider a deal where the seller finances the place on some sort of terms. You can even set the terms to reflect the ups and downs of the income.

3. Business financing for a small local business is best handled through a local bank. Even if they do not fund bars they likely will have info on people that due. Maybe, just maybe, the SBA will be able to back the loan. A local commercial lender will know who handles SBA loans.

4. If the guy has been mis-reporting the bar income and bar expenses then use the tax returns as the starting point. He will argue that the bar can produce more profits. You can say look at the tax returns. He will say those are not the real numbers. You can say that a simple call to the IRS should help clear things up if he wants to restated his prior year tax returns and pay the back taxes. Once he realizes that you will not pay for profits that the owner claimed to the IRS did not exist then work out a compromise. That is where an earn out agreement can come in handy. He funds the loan and you agree to a price that varies based on the performance of the bar. When you have 2 or 3 years of tax returns filed you can get new financing to pay him off.

John Corey

John Corey