I sold my landscaping company two years ago and now I have some free capital and a lot of time. I keep hearing about people writing small checks ($10-50k) into local businesses like coffee shops, HVAC companies, the neighborhood gym, etc. Not venture stuff, just backing people in my own town. How do you actually structure that without getting taken to the cleaners? I'm not trying to become a banker. I want a simple, fair way to put money into a business I can drive past and feel good about. What has worked for people here?
Local Investing
How to write small checks into local businesses
Simplest thing that's ever worked for me: a straight revenue share with a hard cap. Put in the money, take 3-5% of monthly gross until you've gotten back 1.5x, then done. No equity fight, no valuation argument
gross revenue share sounds brutal for a business with thin margins though. you're taking money off the top before they even pay rent.
It's only brutal if the number's wrong. 2% is survivable. 8% will kill them in a slow month. You have to actually care whether they survive, otherwise why bother.
Honestly the biggest issue isn't structure, it's that most small local businesses you'd WANT to invest in don't need or want outside money. The ones actively hunting for $20k checks are usually the ones that can't get a bank line for a reason. Not always, but often.
This is the uncomfortable truth nobody wants to hear. If they had clean bookss and a decent track record they'd be at a credit union.
Not necessarily. Plenty of owners just don't want to deal with a bank's paperwork or put up a personal guarantee, especially after 2020. I lent a guy 15k for a pizza oven expansion and he paid me back early. Never touched a bank. So it happens
Sure, it happens. I said often, not always.
Can we talk about the actual paperwork? A handshake and a text message is not a deal. Get a promissory note, at minimum. One page, signed, with a payment schedule. If they balk at signing one page, that tells you something.
second this. a one-page note in a drawer beats a beautiful verbal agreement every single time
Promissory note is easy enough. Does anyone bother with a lawyer for a size check like this? $500 of legal fees on a $15k note feels silly but I also don't want to be cute about it.
For a straight fixed-payment note? I just use a template, and have the borrower sign in front of me. For revenue share or anything that touches their equity, yeah, get it looked at. The complexity is what costs you, not the dollar figure.
Also: get a UCC filing if the loan's meaningful to you and there's equipment or inventory. Learned that one from a guy who got burned when the borrower sold the shop and skipped town. It's like 40 bucks to file
for a 10k check? feels like a lot of machinery for something that small. at some point the admin costs eat the return.
the admin is an afternoon. The loss is the whole check. This is not a close call.
Different angle nobody mentioned: ask to see 12 months of bank statements, not a spreadsheet they made. Bank statements don't lie. I've passed on three deals just from those, and none of it was about thhe numbers being "bad" — it was the weird deposits and cash withdrawals that made no sense.
the bank statement trick is worth its weight in gold. tax returns are theater, bank statements are the movie
careful reading too much into cash withdrawals at a small business. the owner's buying lunch, buying supplies, whatever. cash is how a lot of these places actually run.
Fair. I didn't say it's damning. I said it's worth asking about. Context matters.
The bank statement point is the one I'll actually use. I've been looking at the P&Ls people send me and sort of nodding along. Also noting the revenue share cap vs. straight promissory note disagreement — sounds like there's no one answer.