Advice on Borrowing Money from Private Sources

[Afaia]

Hi

I've also posted this in the Financial section as I didn't know which was more appropriate.

We wil be buying two new yachts for next season and have other plans to expand.

We can get a bank loan for at least some of the costs but we've been approached by two private individuals who want to invest in our business but not necessarily to own boats. They are just looking for a better return than they are getting for their money at present than leaving it in the bank.

Can anyone direct me to websites or to individuals / companies that could advise me on how to structure an agreement to borrow money in this way.

Are there any major pitfalls to be aware ofr?

We are a Greek company so we'd need to get the final documents drawn up under Greek law but I want some general advice just now - what sort of timescale, interest rates, should it be tied to shares etc.?

Many thanks

 

[PhilWarman]

Totally off topic but had my very first "abroad" holiday on Aegina back in 1987 - loved it

 

[jim_price]

Well, it's good news that you are able to attract these investors, but I'm not sure anyone can really give you meaningful advice on what the terms of the loan should be without full knowledge of your business plan, financial forecasts, exit plans etc.

Very broadly, you would ideally match the period of the finance agreement with the period over which the asset is generating earnings for you.

The cost of the debt will be influenced by the risk associated with the lend (will the yachts be offered up as security for instance?), and by your ability to negotiate with the lenders.

Tied to shares? If you mean a loan that can be converted to equity at some point under certain conditions, well, yes possibly you could do that but what is your attitude to your equity stake being diluted?

 

[Sanjay Kachhela]

Hi

Tell me how much the individuals would like to invest and I will tell you if a tax efficient structure can be put in place. I do agree with Jim by the way but in any event if the investors are UK residents, they will have tax implications on their return.

Regards

Sanjay

 

[yorkshirejames]

Does your company have any connection with the UK at all? Do the potential investors have any connection to Greece? There are potentially lots of ways to structure this - it depends on what they want and (to a lesser extent) what you want.

 

[Afaia]

Thank you for your comments. Have been very busy and not on the forum since I posted.

Neither investor has any connection with the UK. One is Irish and one is German. They both live in Greece.

We are British but resident in Greece and running a Greek registered company.

I don't think any of us will be affected by UK tax.

All I wanted to know was whether there are any major things we should be wary of.

 

[yorkshirejames]

I would want to speak to a greek advisor, to be aware of issues in that country. I know a couple of greek accountants based in London who could advise on both aspects of the business - potentially they need advice on the Irish/German implications too.

 

[Afaia]

Thank you very much. Could you PM me with their names and contact details?

 

[Zeno]

I can't offer any specific technical advice however I can tell you some general points regarding private investors:-

1.They have a habit of sticking their oar in your business regardless of prior agreements not to if they feel their money is at risk. It's all very well waving bits of paper at them from the lawyers but will this stop them turning up and offering their 2p? Silent partners are only silent so long as they are happy.

2. If the indivduals get the idea you used their investment to purchase the boats, they may feel entitled to a shot now & then. The definition of now & then may become an issue.

3. Private investors sometimes come looking for their money back if they have gotten themselves into cashflow difficulties.

 

[Afaia]

Thanks Zeno

I don't think use of boats will be a problem as they both have their own (one of them has three!) and they specifically do not want to own or part-own another.

The other two points are well made though and we will need to make sure whatever agreement takes them into account.