Forums: Discussions for entrepreneurs and small business.

To all:

I am currently in the process of searching for financing to open a special event venue/banquet hall.  My plan is to utilize debt funding and equity funding.  The equity portion will be used to finance the down payment on an approximately $1.5MM loan for real estate and new building construction.  I hope to raise the equity portion from family friends and local investors.  My targeted amount is $300K with my additional contribution of $100K to offset start-up costs.

Question:

Where is a good source of information on equity agreements and buy-back clauses? Specifically, what is a common way to buy-back equity in a small, slow-growth company?

Because the equity investments will be secured by hard collateral (and I view them to not be as risky as other start-up investments), what would be a reasonalbe ROI for an equity investor in this situation? Should equity investors also be paid dividends/disbursements during the "buy back" period?

Do you think a bank (covering the debt funding) would require personal guarantees on the loan from my equity investors?

Thanks in advance for your advice and I look forward to developing a strategy for pitching this opportunity to local investors.

I think I will ask some valuation questions in my next post.

 

Regards,

Rob

Rob,

Without more information, it's difficult to determine an "appropriate" ROI. Remember, it will be their perception of the risk that will determine what they expect as a return.

 

Depending upon the bank, it is possible - since you're a brand new business. SBA loans usually require guarantees from every "significant" owner.

 

There are a number of ways to structure a "deal" to include a redemption of the security. The business needs to be capable of producing enough excess cash to enable the repurchase- which is often a challenge for a startup.

 

If you want to discuss the specifics of your situation, send me a PM or contact me directly.

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Rob,

there are other options that could be less burdensome for you even through equity finance. Email me and i will clarify this. M email is: l.burwell@wirthmorepartners.com

Larry Burwell

Wirthmore Equity Partners

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