Question

Topic: Other

Investor/loan/limited Partner

Posted by Anonymous on 5/15/2006 at 8:13 AM ET 250 Points
Due to past credit problems I can not get a bank loan. One of my Artists has offered to loan me money to help the business. In a weak moment I asked him if he would like to be a partner. Based on past experiences I don't feel having a partner would work.

So I am considering some kind of incentive program where he would receive a large cut of the profit for each sale he brings to the business to help pay back the loan.
I have no experience or knowledge on how incentive programs are run.

The other way may be to have him as a limited partner.

Of course just having a typical loan with interest may be the best.

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RESPONSES

  • Posted by adammjw on 5/15/2006 at 8:43 AM Accepted
    IMHO such a role mix-up is not supposed to serve well the business.
    You have to decide what role your Artist is going to play.
    If it's only for the money you need just treat it as a loan.
    If you believe he can really help you boost the business and need his money just make him your partner.

    Regards

    Adam
  • Posted by Frank Hurtte on 5/15/2006 at 10:59 AM Accepted
    I believe in getting others to invest not only their money but their active support. Can the artist bring you business? if so you need to answer the rhetorical question, how much will you pay me to make you a million dollars?
  • Posted on 5/17/2006 at 1:02 AM Accepted
    The tax man will want you to treat the money as either a loan or an equity placement, not both. That doesn't mean you can't borrow the money, pay it back, and add on some stock or stock options as a partner interest.

    They can be a passive partner -- you don't have to give them any control or responsibility if you think that will be troublesome.

    But think about the other idea. They loan you money. They get paid back when they bring you a sale. Would you do that? I am not sure that is much of an incentive for a loan. It may be an incentive to put extra effort into new business development, but not a loan payback.

  • Posted on 5/21/2006 at 12:07 AM Accepted
    Have you considered (you didn't mention it) becoming a corporation? If you did, you could issue stock, rather than having a 'partner' in the conventional sense of the word, you would have a shareholder. You offered PREFERRED shares, non-voting, put with large dividends, maybe paid quarterly, that may give you both the deal you can live with.

    Good Luck,
    Debi Brady
    Writing & Marketing Consultant
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