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Ummmm this sounds like a high-risk investment. Plugging the holes of one business with income from the other two muddies the P&L for all three. And tbh, I am terrified of how income reporting/tax filing would happen.
A sounds the equivalent of a balance transfer rollercoaster all in the name of managing interest rates.
Either way, you are stuck between a rock and a hard place
- Saying no may generate resentment on both sides of the aisle
- Saying yes may expose you to negative financial outcomes in the midst of a global recession that hasn't even peaked.
My recommendation, if you should proceed, would be to inquire
1. If and why financial institutions/grant sources declined his funding applications?
2. How to access said applications and rejections to understand what risks you are exposing yourself to?
3. Ask what collateral is being put up against the bridge loan? For yourself, ensure that this information is clearly documented and signed off by a qualified and licensed lawyer
4. What are the repayment terms and associated interest rates?
5. How will clarity on financial reporting be provided based on the income corral method currently being used? Especially relative to RSUs, reported income and filings for YOU
If you have the bandwidth for the loan...proceed with caution and prioritize your best interests over emotional attachments... this is business. Just remember one word...ENRON.
Also, keep in mind that if things go belly up, this may seriously impact your friendship because money often makes relationships funny (and not ha-ha funny).
Seriously though, best of luck to you and your friend. Founding a successful and profitable business is no cake walk
Thanks! He doesn’t want to go to a bank for some very obvious reasons you point out. I’m not really looking at this from the perspective of helping a friend out, so much as it’s a decent windfall and if he’s willing to stake his profitable companies equity then I’d be buying in way below what that would be worth, as well as getting a stake in his new but potentially worthless one.
I’ll probably do it, just waiting for him to review the agreement sheet and then will have a lawyer take a look.
Does not sound great to me… what is his plan to make #3 successful? 25% is too good to be true imo
Is there any chance that #3’s requiring funds from the others could seriously impact the others such that you don’t recoup your $? I guess how big/profitable are the other two compared to the drain of the third
If he is a real friend, keep it seperate from business.