What does "invest in a business" mean?

Wants to be a partner in a partnership entity

Wants to be a lender to the person

Wants to be a lender to the entity

Wants to be a shareholder in the corporate entity

If he is that concerned about it failing, why would he want to invest in it?  And yeah, most likely he is looking at $3000 per year.

And that is the question. Is there a preferred structure? appears he has options.

Not concerned about failing, just being judicious and researching all potential outcomes.

Tend to agree with the 3k per year although he might have other cap gains that could possibly lowered by a loss

"appears he has options"

Do you watch Shark Tank? Yes, he has options. For instance, he can make a secured note to a person privately, taking a lien on real property; that's why it's called Betting the Farm. There always are options. It's all about risk and expectation. It also depends on the operations. Perhaps he needs to consult with an attorney.

It depends on how he plans to lose the money.  If it's through operations, then it's the amount he loses every year, including the last one. If he buys a business for 100k and sells it for 30k, then he might have to claim 3k a year, and in the long run that might save him more tax than claiming 70k all at once.