I apologize if this gets confusing. I work for a company that has a partnership program where they help you build your own business. To me the easiest way to think about it is similar to franchising, but not quite.I can own anywhere from 25%-49% of the business and they own the rest. When a new business is started, they do 70/30 loan to cash. So if it costs $1,000,000 then a $700,000 loan will be taken out and $300,000 will be needed in cash. If I want to buy in at the 49% of the company, I would need $147,000. If I only wanted 25% of the company, I would need $75,000. With the time frame I am wanting this to go through, I will only have enough money saved for the 25%. Over the next 5 years I can buy more percentage of the business at the same original rate to get up to the 49%. My question is, would it potentially be better to try and take out a loan to cover the difference of what I need to start out with 49% or just do the 25% and then buy more as I can? Also, would a small business loan be the best option or something else like a home equity loan (Have enough equity to make up the difference)? Thanks

What kind of income would you expect in year 1, 2 and 3? What profits will you earn at 25% vs 50%?

It's literally 100% more so I assume it's better to take out a loan for the 25% up front rather than give away 25% profits until you can save up for the increased buy-in.

Maybe the only thing to worry about is how risky the loan is - is this a slam dunk investment or great ability to fail? This is a risk reward to consider. Risk is it fails and you're stuck with a loan and no income. Reward is you make an extra 25% profit.

Qualifying for a loan will be difficult if you aren't the controlling owner and they have already loaned you 70%+ of the cost. Anyone that loans you more money will either be unsecured or fully subordinated to your company loan.

That rules out banks, unless you qualify for a personal loan and/or home equity type loan. Private lenders will want equity (which defeats the purpose). Family loans are a recipe for disaster.

Based solely on what you posted, I would buy as much as you can afford now and assuming it works as planned, live as cheap as possible to save the funds to buy the rest asap.

That's what I was originally thinking, I would expect the profit difference to more than cover the extra loan if I could get it. Talking with a friend that did just the 25% and opened 13 months ago, he is making about $30,000 more per year at this point than I am currently making.

For how risky it it will be, basically depends on how well I do. I feel pretty comfortable and have not failed so far in my career, but I know it will be a lot different when it is mostly on me. My biggest concern, which I feel the people I will be partnering with will understand, is their model is based on needs of clients in downtown Dallas and I am wanting to build in Fort Worth.

Thanks, that makes a lot of sense about the loans.

I'm assuming based on your username that this is a vet clinic. My advice to you would be to buy as much as you can up front. You will be more motivated for the success of the practice. It sounds like this involves opening a new practice instead of buying an existing one, so there will be some lean times as you build your clientele. Ownership is a whole different animal than being an associate, but I suspect a lot of the management of the business side won't be in your hands. Also know that you won't have control over when this group sells to a larger group or private equity. I'd also look into if there are options to extend your ownership in other practices where the partner doesn't want the full 49%. As long as you are comfortable with that, then press on.