Is Debt Financing A Good Cash Flow Investment??

[Fredrick Hock]

Hello,

What do you think of investing in private companies via Debt Financing (or even Equity Financing)?

I am looking for buy-and-hold investments that produce cash flow (other than rental properties), as opposed to capital gains. That said, I'm considering investing in some private companies via Debt Financing because they would pay a quarterly distribution if all goes well.

I understand it can be risky (some of the private companies have a fraught history, with CEO's that were accused of fraud & bankruptcy; while other companies have a cleaner track record). The riskier companies offer a higher interest rate (17% - 18% annually for a 36 month bond), while the safer companies have a lower rate (6% for a 12 month bond, or 10% for an 18 month bond). Minimum investment is generally $5K - $10K.

I have never done this kind of investment before. What do you think of it? What questions would you ask the private companies before deciding to invest? Would you recommend this route, or would you rather invest in more established public companies that offer dividend stocks (even though the average return of 8.8% is slightly lower than private company bonds)?