I am partners with my parents and 1 brother on an auto shop, rentals, and some farm ground. Over the years we just all put in money so assigning equity was just math.

My other brother moved back closer and wants to buy his own shop with us as partners. My question is he wants to put his house and some land up for collateral for his share of the business. Basically it would be a business loan secured by his assets and our cash would also be put in as a downpayment. The business would pay back the loan secured by his assets.

How do you value that? Lets say we can borrow 100k for the business that we couldn't borrow otherwise without those assetts, but the business pays back the loan? If he isn't paying it back then he shouldn't get 100k in equity obviously, but it still has value. My parents threw out the idea that it was worth 50k in equity, but even that seems a little high.  

I'm the partner that always has the business answers but I was kind of stumped on that one.

There is only one in this area and I don't like him or trust him. I'm really rural. I may have to do that but I thought maybe there was a rule of thumb for it.

I drove 120 miles last night to go to a walmart to buy 1 thing. I'm that rural. Lol.

What if it doesn't work out? I am sure you are not anticipating that but no one ever does. It seems like a recipe for disaster if things go bad. He would be the only one with pledged collateral and it would likely cause a major rift.

Is everyone putting equal amounts of cash?

I guess you guys combined don't have enough cash to put down to have whatever it is you are buying stand goodas collateral on its own?

Its part of a larger parent company that owns everything. Basically he will own x shares in the whole thing. I prefer to leverage as much as possible and preserve cash for more rentals. Within reason.

We are putting in different amounts of cash,  thats easy to figure.  Just need to assign value to his contribution.

It would take a lot more than that one thing failing to put us under.  If we ever do fail we liquidate as fast as we can and walk away.

Even if it were 120 miles round trip, that's really rural.

How is it even possible for an auto repair shop to exist? It must take days before Napa drives a set of brake pads out there.

We drive a lot, but we have a lot of big ag.  

I have 2 people at our business that literally drive and deliver parts to our techs all day every day. Sometimes they'll drive 200 miles to get a bag of anchors or a filter.

I'm being fired right now but I average 80k miles a year as a manager.

Napa has a delivery pickup drive 60 miles each way, every day. On top of that we have 1 parts store already and one napa just opened on top of the one that delivers.

Cat comes 120 miles each way, every day. They have a huge network of parts runners. I can place an order at 5pm and get a part from denver (4 hours) or eastern kansas (5 hours) delivered by 9 am the next morning from their long distance parts runners. The short distance guy delivers at 6 am from 120 miles away.

Peterbilt and Kw do 60 each way every day.

That's not a bad way to do it. I want him to be motivated to make it do well so at the end of the day this equity is small potatoes in the grand scheme of things.

My parents are one partner.

Your brother should not be putting his house up for collateral for the business.  He should go get a personal mortgage on the house (cash out refinance essentially) and use that cash to fund his portion, he can repay the loan with his share of the income generated from the business.  This brings everything back to simple math.

I must be missing something...

Why doesn't he just borrow the $100,000 against his assets and put it in the company?  Then he has the benefit of $100,000 stake in total company (and whatever % that represents) and he holds the risk associated with pledging his property.

ETA:  Whichever part of the business he runs can pay him a salary equal to his mortgage payments.  All other income paid by % of ownership of total business.

This is what I would recommend.

Keeps it very simple.

We may end up doing that if I don't get my mind set on a fair way to do it otherwise. We were mainly going to use the house for a operating line of credit and the cash would be the downpayment. We only need the operating money during certain times of the year so it would be paid off during the other months.

Also we were going to do it the other way was because we typically don't distribute any extra profit, just enough for taxes and reinvest the rest.

Well fellas, thanks for the advice, that gives me some ideas to go on.