[seeking advice] Raising debt from investors, instead of equity or SBA loan

March 11, 2019

by a searcher from University of Delaware in Philadelphia, PA, USA

Has anyone raised debt from individuals to acquire a business? How have they structured it / what are the trade offs.

Thanks,

Ross

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Reply by a professional
from William Mitchell College of Law in Minneapolis, MN, USA

Hi Ross. It’s done all the time. That debt is still a security (like stock or equity) so you still need to follow those rules. Individuals are not usually as strict on the terms as banks or other lenders. For search funds, you can do convertible notes (convert into equity at some future point) so that you don’t haves to repay the debt or you can do regular debt that has to be repaid. Investors will likely want security. But search fund type investors usually want the upside of equity, so you may have to offer a combination of debt and equity. Good luck!

Reply by a searcher
from University of Pennsylvania in New York, NY, USA

Hi, Ross. I was wondering if you got to the bottom of this question and if so how you ended up proceeding? Were you able to structure something where you raised debt with some equity upside?

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