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When a Loan Document Isn’t Evidence of a Loan But Rather an Equity Investment

Posted by Melissa Grant on Jun 16, 2015 11:00:00 AM

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When a Loan Document Isn’t Evidence of a Loan But Rather an Equity Investment

If you trust or appreciate a family member or friend well enough to capitalize on a loan offer but not well enough to become business partners, draft your documents carefully. If you are not careful, your generous family member or friend could be adding “Business Owner” to his or her resume! 

Sometimes a piece of paper is sometimes just a piece of paper with words.  A document intended to be a loan must include important terms to avoid handing over partial control of your business to your family member or friend as an equity investment.  Is your loan document missing the following terms?  

  •       The Parties
  •       Specific Use for Funds
  •       The Loan Amount
  •       The Interest Rate – Regular & Default
  •       Repayment Schedule & Prepayment Options
  •       Late Payment Fees
  •       Commencement & Maturity Date
  •       Unsecured or Secured Collateral Designation
  •       Execution Date & Signatures 

There are advantages and disadvantages to both loans and equity investments. Speak with your attorney and accountant today to review the details and determine which best meets your needs and helps you succeed!

If you have any questions or concerns contact the Goosmann Law Firm at info@goosmannlaw.com or call 712-226-4000. 

In this day and age, everything can be for sale if the money is right, and this includes your business. How can you figure out if the price is a good one? 


Interested in Knowing Your EBITDA Calculation?

You can start with the FREE EBITDA calculator offered by Goosmann Law Firm. This calculator determines your business’ Earnings Before Interest, Taxes, Depreciation and Amortization, and will help you determine your company’s current value. Our calculator will provide you with

  •       Total net profit
  •       Total EBITDA
  •       Total Benefits and Add-Backs

It also breaks out additional information that will be crucial to getting the right price for your company. 

Be prepared for tomorrow. Download our EBITDA calculator today.

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