How are business investors paid back?
What they get out of investment is ownership, which pays off either when you sell the company, or register it to trade shares over a public stock market or you make profits and pay dividends to the shareholders.
And for this kind of investment, you can’t just find people willing to write you checks.
Do you have to pay back investors?
There are several options for repaying investors. They can be repaid on a “straight schedule” (for investors who are providing loans instead of buying equity in your company), they can be paid back based upon their percentage of ownership, or they can be paid back at a “preferred rate” of return.
What happens to investors money if startup fails?
No, founders don’t repay investors if a startup fails.
The investor takes the risk, owns a share in the company, and loses the money if the startup fails and that share loses value. If the founders owe the money, that would have been debt, not investment.
What happens if your small business fails?
Even if the business filed bankruptcy, the creditor can still come after personal assets such as cars, checking or savings accounts, and even a home. The lender gives money to start the business, but requires the business owner to be on the hook personally if the business fails.