They build (or fit out) the new restaurant, if it works then fine, if it fails then also fine, as they got to take $60,000 of income from the “investors”, and whats left to return to investers… nothing.
What would a bank do ? only provide a loan that is secured by valid, liquifiable, assets …eg using their homes as security… why wouldn’t you ?
Whats the fit out worth ? at the fire sale, $15 … who’s going to remove the fitout ? its so much labour to remove it and install it elsewhere…
They’d phoenix the restaurant debt free for $100
Good food, pleasant service, nice ambiance! It’s a simple recipe, to be sure. But in fact there are literally thousands of ways for a restaurant to go badly, even when they have the recipe down. Even restaurants that are going enterprises, successful and profitable often tank following expansion or change of location.
If you’re not intimately connected to someone involved in this endeavour, that’s a huge red flag, don’t do it!
If you are, then be aware investing could also, in the event it does not go well, end up costing you that relationship. You could lose a friend, there may be acrimony when things go badly. To say the least.
There is a semi-famous restaurantuer in Dallas that I will not name (because he’s known be a litigous sort) that has had numerous investment partners and restaurants. I got curious why he pops up every few years with a new place. I found an old news story about him that described how he ran his scam in his early days. He would get an investment partner to front the money for a new restaurant and then buy all of the equipment with collaterized loans. Then he would funnel the investment cash into a separate account and thrn eventually default on the loans for the equipment. The investor found out his money was gone when the creditors showed up to reposess the equipment. I seem to remember that lawsuits ensued.
If after being established for 30 !years! the owners don’t have even have $10,000-worth of retained earnings, something is seriously wrong.
Either the owners are incompetent or shady. (i forget what axiom that is----the one where the by-product of incompetence often looks the same as malicious intent).
I know nothing at all about this particular scheme.
I’ll just note that even IF this were a wholly legitimate restaurant being run by honest people with a great chef and a seemingly solid business plan… new restaurants go belly up within a year more often than not.
So, “invest” money only if it wouldn’t hurt you that much to lose it. Restaurants are a VERY risky proposition under the best of circumstances.
A restaurant can never be a safe, risk-free investment. If you want security, invest elsewhere.
I’m not sure whether you know this or not, but these are NOT what makes a restaurant successful. That’s actually why so many of them fail.
If you want proof of that, just look at fast food. Marginal food, negligible service, negative ambiance: 50,000 franchise locations!
Fast food is successful because they have 1) consistent product 2) proven management skills/techniques 3) proven metrics for cost and price ratios and maybe 4) brand awareness/advertising.
Trust me… you get all four of those in place and it doesn’t matter what food you serve. For example, I’ve heard you could be profitable selling nothing but coffee.
I hope this discussion is also useful to the OP. Forget interest rates and creditor rankings. If the restaurant fails, you get nothing. If the restaurant succeeds, it’ll have nothing to do with what’s printed on your contract. Get a proper business valuation done on any existing operations, or at least have a qualified professional review the business plan in detail. If that professional isn’t ready to invest their own money by the end of the review, then do yourself a favor: just put the $10,000 in an interest-bearing account and use it to treat yourself to a few “free” meals. That’ll be more benefit than most angel investors get out of any restaurant.
