Present a business case for an existing business starting a finance company for the products it currently sells. The existing business (Company A) is well funded and currently has 250 million of its sales (equipment) being financed by an outside finance company on a yearly basis. Company A has beginning free cash of 25 million to finance existing customers in future purchases. The goal would be to finance 10% of all credit worthy customers and send 90% of those customers remaining business to existing Finance company to diversify risk.
Example:
If “Customer A” buys 1 Million dollars of equipment a year, then new Finance Company would finance 100K and send remaining 900K to outside finance company.
New Finance Company would be set up as an LLC, with 33.33 % ownership between Individual A, Individual B and the existing Company A. Company A would provide all capital but individual A and B would provide all “sweat equity”. Due to the competitive nature of the finance business the interest rates that new Finance Company could charge range between 3.5% up to 9%, with associated risk determining return. The new Finance company would like to risk spread to be 75% low risk (low return), 15% Mid risk (mid return) and 10% high risk (high return).