A participant asks Mike Andes about borrowing $20-40k from family for a landscaping business. Mike recommends an interest-only loan at roughly 8% interest ($300/month on $40k), a minimum two-year term, and warns that borrowing from family can complicate relationships.
8% interest (example given).
About $300 per month.
Preferably a minimum two-year term.
Hello, Augusta Nation. Let's go ahead and get started. First all, thank you all for the very kind wishes for my birthday today. I appreciate it. I am not very good at receiving gifts or well wishes. I'm trying to get better at that. But thank you all. I know some of you gave to to Liz and I'm not supposed to come in the office till later today because of gifts giving and it's on my schedule for 1045, so after this I can go open my gifts. So I know some of you donated and gave to that and I really appreciate it. I'm not very good at saying thank you for those sort of things, so. But I do appreciate it. And happy birthday, Kevin Fairburn, my fellow September 13th man. So let's go and jump into it. You have a whole bunch of questions that came in. I'm going to add these in. I have not read through any of these. So we'll just go ahead and get started.
You zoom in because there's quite a few today. So I want you guys to be able to see these again. One second here. Is that okay?
Yes. Okay. All right, first question. I was approached by a family member that does not have time or desire to run a landscaping or small business. They do, however, want to diversify their assets more than they already are. They came to me and were interested in parking 20 to $40,000 over the short term, likely a one to two year deal with me to help start another location or boost growth of my existing location. They have no interest in being a partner and don't want any equity. They are looking for a return on their money, much like a loan. What are your thoughts or opinions on this deal? What would you say is a fair percentage return on their money that helps both them and me? I don't feel that I need to grow them need the money and they understood that before coming to me. But I could see it making our business grow quickly this coming spring. Yeah, so two things. A short term deal, like one to two years is good. When someone's like three to six months, it's difficult to get the money back from your investment. It's not about return rate in that case, when it's that short of a deal because I'm very confident. For example, you did a $40,000 deal, 8% interest. You're looking at, you know what I would recommend in this case is you got to ask, ask the person do they want cash flow like every month coming back to them and try to do an interest only deal where you're paying like 8 is fair percent.
Back to them every month. So 8% on 40,000 is like 300amonth. They'd be getting back in form of interest and then the principal is due at the end of that year or two. That makes a lot of sense. You have a big principal payment. But again that $40,000 in two years you should have grown the business to the point where like that's doable. Right. A year starts to get a little squeaky. To get your all of your capital back in a year can sometimes be difficult unless you're starting new. Like if I gave you 20,000 dol today on your business and he grew the company like you're going to have to invest quite a bit of infrastructure like more trucks, more equipment, et cetera to facilitate all that growth. So getting the money back in a year is kind of tough. So I'd be looking for a minimum of two year deal honestly.
And then 8% interest you could also do. They don't want equity. Okay. Yeah. So either a you're looking at interest only deal usually works really good because you can easily, you know, if you have 20 to 40 grand, you're spending that on growth or a new location or whatever. That's a few hundred dollars a month in interest max. You're looking at 200, $300 a month in interest. That should be very doable to beat. But again, you know, I family I don't know. I'm personally not a huge fan taking debt from family because murky's the waters massively. I only be doing it if it was for the interest of their like they wanted to do it and they wanted the money and it was very clear in a contract like they could lose all the money, it can never come back to them. Like that's. You just cannot murky the waters. And I would never ask personally family for money. I did it one time because I needed like a few thousand dollars to make payroll back in the day. Kyle, is it possible to get a copy of the slides Went over at training after coming back I found my note taking ability is very lacking. Yeah. In notebook.
