FINANCING $150K OF EQUIPMENT FOR 8.5% AND 20% EQUITY.
One of my targets approached me for help with equipment finance. The business is a niche construction business that needs to replace a key piece of equipment for $150k. The original was destroyed by a third party. The owner is currently working through insurance/courts for damages but needs replacement equipment to perform ~$500k of backlogged work. Lead time on the new equipment is 3-5 months.
The owner has proposed 8.5% interest 5y term and 20% of the business and is flexible on rate etc. Debt would be secured by the piece of equipment.
Positives: I like the segment that the business is in and have previously looked at purchasing a competitor. This business has a strong reputation. $150k is fairly cheap for 20% of the company.
Negatives: If the owner defaults re-selling the equipment would be challenging. I don't necessarily want to tie up $150k (I am a self-funded searcher). 8.5% seems low. I don't love the idea of minority ownership.
What else would you ask for as collateral? What rate would you propose? Could I purchase the equipment in a separate entity, finance it and mark up the rate to the business?