I am looking to get started in investing. I have a lender/friend who is offering a line of credit up to $50K. His terms are 12.5%APR and a 50/50 spilt on net profits. Thoughts from the group?
12% a year on borrowed money is pretty normal for me, and usually 2pts off the top in addition. However, that would be it for me and I wouldn't expect them to want a part of the deal unless I was borrowing a substantial amount like $400k or more. Even then, I'd expect them to front the money, split the deal 50/50 but not get paid on their money as well. Sounds like a tough deal you are being offered but without any other alternatives you may not have a choice.
Hope that helps.
John is quite right here. He can be either a lender and charge you interest or a partner and get a piece of the profits ... not both, at least not at 12% interest. If he wants both ends, similar to preferred shares of stock, I'd do 6-7% interest & split profits. This sounds like an incredible deal for him though.
I agree with both John and Greg.
Beside financial advantage does this lender have any other qualities that would be beneficial as a partner. Make sure you both have a fully thought-out contract explaining each other roles.
If you get a sweet deal, call me. I'll bring the loan and be the only signer for it, and still only take a 50% cut, thereby by giving you 50% with no skin in the game. Seems to me like your lender is better suited to giving colonoscopies rather than loans.
Thanks, everyone for the advice. I have passed on this person's "offer". I will definitely contact you, Guy when I have the right deal.
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