How to find good investments for bridge loans?

I discovered that I have some borrowing capacity at low rates based on an investment account that I have, and so I'd like to draw down that money and loan money to start-ups and other companies that don't/can't get traditional institutional financing.

I'd like to offer bridge loans, for fixed periods, that are repayable in cash--NOT convertible into equity, since I have to pay back any drawdowns myself in set periods of time.

Are there networks of investors, primarily in NYC, who do this? How much interest from borrowers would there be in this? I'm thinking interest rates of 10-15%, given the risk.

Thanks.

Investors Loan

asked Jul 3 '11 at 21:46

User6492
1,747 points

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1 Answer

It is unlikely that you will find people willing to take your money - and if you do they are very poor risks.

It does not sound like you are an accredited investor. This is not suitable for working with startups.
10-15% is expensive money
Startups have other options and many (in the US) can get loans at much more favorable rates.
The high default rate and high risk is NOT made up for by the 10-15%. You NEED to take equity conversions in order to have any hope of reasonable return - and that means you would need to have a good way to identify suitable companies.
You may be crossing a threshold of some banking/security regulation as a lender - thought I am not sure about this.

What looks like a simple, good idea and way to help startups is really not worth your time/money.

answered Jul 3 '11 at 23:38

Tim J
8,346 points

Thanks. I am an accredited investor (barely). How about loaning at up to 10%- are there angel investor groups that would join in on this? I'm thinking start-up companies that have an equity round coming up and just need cash for the short term, until then. – User6492 13 years ago
Why would an accredited investor be skimming the middle percentages - borrowing then loaning and not taking equity - that seems like a hard way to make some return - you would get what, 5% float? That just sounds like a bad business for someone who is accredited and doing so when there are real profits to be made in equity just seems like chasing up the wrong tree. I doubt any "angel investors" who would consider this at all. – Tim J 13 years ago
I would want to be repaid in cash, rather than equity, because when I borrow on margin (to obtain funds to loan out), it'd be a term loan. Since I'd have to repay it back on a set date, I would also need to be repaid on a set date- I thus wouldn't be interested in having an equity stake with an uncertain payout date. If it were my own money that I'd be lending, then it'd be different and I would go for equity. – User6492 13 years ago
What you propose is a terrible investment idea - you have money at risk and you are getting only 5%-10% (and you are on the hook for all the money/loan) - that is NOT a good investment. I understand the rationale for getting payments and not equity - but my point is that you miss out on the real return. Taking out a loan to loan to other people for high risk loans is really not a good idea for the paltry returns you are talking about – Tim J 13 years ago
OK thanks. I appreciate the feedback. – User6492 13 years ago