I am negotiating a park purchase that I will not be able to afford on my own nor will I probably qualify for the loan by myself. I am trying to decide if I should partner 50/50 with another person who will share all responsibilities or if I should find an investor who puts up half the money needed for the purchase but then is not involved in the day to day operations. Perhaps they are getting a preferred return and an equity split. Is there a difference in the banks eyes when they are looking at the loan if someone is called a partner or investor? If I try to go the route of using a passive investor, then will I still be as unlikely to get the loan?
So this was a stupid/obvious question?
Anyone?
I think you have to decide whether you’re “recruiting” someone who is going to be taking recourse liability with you (co-signing). A limited partner is not going to solve the problem if you can’t qualify for the loan yourself.
Is the partner going to co-sign on the loan? The bank will care very much whether this happens. If you can’t afford the loan and the bank won’t lend to you anyway, I assume your partner is going to have to co-sign and assume responsibility for the loan. I think a lot more will depend on your partner’s financials than on whether they are active in the business.
Are you competent? If not, the bank might care who the other partner is (resume, experience, etc. Not just financials). If you are, then the bank may not care who the other partner is.
Are you and your partner going to be partners when rough times hit? Or have a fight? The bank may care about this.
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Thanks Brandon. What you are saying makes perfect (common) sense to me. And yes, I am competent. I am working on a deal though that is too big for me to qualify on my own so I am trying to wrap my mind around all the different scenarios I may want to explore. I wasn’t sure if the banks were acting with “common” sense or just some specific rules/guidelines that may or may not make sense. I appreciate your feedback.
I hope you did not take offense – I just meant the bank will either care or not care who is putting in the equity depending on their resume & track record, your resume & track record, their financials, and your financials. They “should” care about the partnership agreement but in practice if the other investor assumes liability for the loan they may not care. The specifics of how the partnership works (cash, sweat) is probably not something the bank is going to meddle with as long as you are clear up front what the expectations are.
But, I’m not a banker.
Maybe this is best put back this way: What are the differences you are envisioning between a “partner vs. an investor?”
No, I didn’t take offense.
A 50/50 partnership, with down payment, ownership duties, and equity split 50/50 is the likely scenario. I’m guessing that the bank would consider both partners when looking at the loan.
I was trying to guess if the bank cares about the words “partner” v “investor”. Would they care if both I and a second person (investor) put in 50% each for the down payment but our agreement would be that the “investor” got a preferred return for his $ contribution and an equity split on the back end but I operated the park 100% and kept the net after the expenses, loan payment and dividend payment. Would they make the loan if the loan exceeded my net worth? Would they make the loan if the investor was also a guarantor of the loan? Or would the fact that the second person is considered an investor, as opposed to a partner, cause them to unlikely make the loan? Does the bank care what we call the second person (investor/partner) or do they just care about the financial wherewithal of the total number of people guaranteeing the loan?
Does what I am asking make sense?
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You’re making sense. But you’ll have to ask the banks and bankers these questions. If you are taking about $2mm purchase and up, you might call a loan broker and they could give you their take, they are a lot more in touch with banks than me.
Yes it’s North of 2mm. Thanks for your thoughts Brandon.
Best,
Ken