I have a friend who wants to invest in my business. He is looking at loaning me a lump sum of money and I will be paying it back with interest. This is being used for what I’d like to call “emergency funds” just in case the rehab project goes over budget. Since this is being considered as a loan rather than an investment, my friend is not being granted any ownership with my company. Rather than paying a law firm to write up a loan agreement, is there anywhere else I could get a template from? Anything that you guys use in particular for these types of situations? My CPA referred me to a law firm, but they’ve been nickel and diming me as of late for any type of advise.
Just use a standard trust deed agreement. That's a promissory note secured by a deed of trust. You can find one for your state at uslegalforms(dot)com. Don't complicate this by using an attorney. The note and deed of trust (or whatever's used in your state) will be straight forward. If you don't understand them, uslegalforms will include instructions with the docs they sell. You could also talk with a title insurance company in your area, and see what they recommend using in your case. Not all title companies offer this information/help, but it's worth asking. You can also, if you're really a cheap, guerrilla-type investigator, go to your local county recorder's office, and look up some recorded second trust deeds, or second mortgage documents, make copies, and then use those as templates. I've done this. You'll find the staff helpful for finding recorded documents. Your lender friend will be fine using these documents, too, as they'll comply with your state, and they won't have any weird clauses in them. Hope that helps.
When my husband put up his retailing business, he gathered additional funds from friends and relatives. But the funds were treated as shares even if the business is a single proprietorship. The lawyer said that such an arrangement would give protection to both parties since that share of stock is accepted as a friendly agreement. However, the investor has the right to claim the money when, and if only, the business flourishes. So clearly it is really a share of the business because there is the element of loss. I'm sorry, I couldn't find the copy of that agreement.
