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From a quick read of their agreement, it seems like the payments are only made when you are actually making a net profit, whereas a traditional loan would requi
by james-anthony 8y ago
From a quick read of their agreement, it seems like the payments are only made when you are actually making a net profit, whereas a traditional loan would require mandatory payments or interest would accrue.
This seems like a middle-ground that is better suited to starting up companies that most likely won't be unicorns. They only get paid once you get to a "comfortable" spot, financially.
Another consideration may be that in the event of business failure, you'd still owe money on the loan but the Shared Earnings agreement would essentially go away since the business is no longer viable. Not sure about this, but this is what I'd imagine would be the case.
- JackFr 8y agoBut it seems likely to me that their 'investment decisions' are going to be made based on a run-of-the-mill small business credit model which will be heavily revenue focused. It's a small business loan with terrible terms.
- tylertringas 8y agoWe're more of a substitute for seed equity. Or at least that's the lens through which we have structured our terms and strategy. Most of the co's we are looking at would not be able to get a small business loan (zero collateral, very limited financial track record by debt standards, etc)
- ivalm 8y agoIf the loan in to the LLC then the loan would also go away if the company fails. The difference is primarily the deferred payments in case of non-profitability.
- bklyn11201 8y agoAcquiring a commercial loan to your LLC with reasonable rates without a personal guarantee is extremely difficult. In all likelihood, a small business is going to have to make a personal guarantee to borrow money.