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Question for a financial advisor… or someone who just knows the answer.

Welcome UCF Fans! › Forums › Misc › Question for a financial advisor… or someone who just knows the answer.

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    • 02/21/2017 at 8:32 AM #28302
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      Larry B
      Participant

      My wife and I want to loan the company she works for some money as an investment. The company is moving to a new building and needs renovation funds. The owner plans on paying us back within 6 months but not necessarily in monthly payments. The contract reads “lender will lend borrower $… with interest payable on the unpaid Balance at the rate of 6 percent per annum, calculated semi-annually not in advance”. This contract was written by the owner (borrower).

      The way my wife and I understood a loan was, the owner would pay us interest on the unpaid Balance each month. So for example if we lent $5,000, the borrower could make payments towards the principal as big or little as needed but the interest would still be applied to the remaining balance each month. So if she wanted to give us our $5,000 back at the end of the 6 months, she still would have owed us the 6% interest each month on the $5,000.

      We tried explaining that to the owner and she seemed to have a different understanding. Reading her wording in the contract, what does that sound like? 

    • 02/21/2017 at 8:42 AM #28303
      Utahute72
      Participant

      Not a lawyer or financial guy, but I think the phrase “…calculated semi-annually,” means that the interest would only be accrued on a semi-annual basis (so at the end of six months).

      • 02/21/2017 at 9:01 AM #28304
        Larry B
        Participant

        Ok so basically if she paid us back in full before 6 months, she wouldn’t owe any interest?

        • 02/21/2017 at 9:50 AM #28306
          PlainsUte
          Participant

          Not a lawyer, but I would interpret the “semi-annual calculation” to apply as long the loan is still open and expect a pro-rated share of the 6% when the loan is repaid for any period less than 6 mos.

           

          6% seems cheap for a business loan, by the way. Also be sure there is an explicit due date on the note, even if it is 5 years from now.

    • 02/21/2017 at 11:17 AM #28312
      leftyjace
      Participant

      Bottom line is, if there’s anything questionable or ambiguous have it put in the contract explicitly, including pro-rated interest. Compounded semi-annually literally means that no interest is calculated until 6 months in. So you need to put a clause in that either doesn’t allow for early payoff, or if there is early payoff, interest is calculated on a pro-rated basis at that point.

      • 02/21/2017 at 12:36 PM #28318
        PlainsUte
        Participant

        and for any partial period after that.  Otherwise they can pay off the loan at 11.5 months and essentially get your money for 3%.

        Rates being paid by Business Develepment Companies to shareholders for writing mostly SECURED loans to businesses:

        Main St Financial 6%

        Prospect Capital 10.5%

        TICC Capital 14%

        • 02/21/2017 at 1:51 PM #28323
          Utah
          Participant

          I’d look into an “On Demand” loan. 

    • 02/21/2017 at 9:11 PM #28377
      Anonymous
      Inactive

      Interest monthly, period.

      Have you looked at the company’s financials for the past 3 years? What do their projections look like? Will you get a blanket lien on the company’s assets. These are all things a bank would want. Otherwise, you’re talking unsecured loan to a commercial business and the rates should be in the 10% to 14% range.

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