Lending money to a Friend

[PAULJ5555]

One of my friends is lending £15,000 to another to buy a business.

I know the old sayings about friends and lending money but this is happening, I'm in the middle and would like to ensure that we all stay friends and also if the st does hit the fan how does the friend lending the money protect himself.

What I know so far, the friend is buying half of an existing business that has been going 9 years and has good returns, minimal chance if it failing, the friend knows the industry/customers and can do the manual work involved.

Its going to be a personal loan, all I could advise was to get it written down and signed off, anything else?

Now if it does go belly up, what should the friend do "now" in order to properly persue the debt in the future.

Edited by PAULJ5555 on Friday 2nd December 13:23

[KevinCamaroSS]

Written contract is a must. Included should be details of repayment schedules, interest rates and so on. Failure to make repayments would then be a breach of contract and pursuable as normal.

[-Pete-]

Could the 'lending' friend buy a share of the business himself, even if he chooses to allow the 'borrowing' friend to make the decisions? Or does he not have confidence that it will be successful?

If not, has the 'borrowing' friend got sufficient assets to survive after the failure, and to repay the 'lending' friend?

[DanL]

It's "only" £15k - why can't they borrow that from a bank?! Whatever the reasons are that prevent them from borrowing from a bank are the same reasons your friend shouldn't lend to them...

[PAULJ5555]

-Pete- said:

Could the 'lending' friend buy a share of the business himself, even if he chooses to allow the 'borrowing' friend to make the decisions? Or does he not have confidence that it will be successful?

If not, has the 'borrowing' friend got sufficient assets to survive after the failure, and to repay the 'lending' friend?

There is minimal chance of it failing, I'm not sure about him buying a percentage I know he doesn't want to get involved with having his name on something he has no control over. He would also have to give back the percentage after the loan is repaid and the legal hassle involved.

[TooMany2cvs]

PAULJ5555 said:

Its going to be a personal loan, all I could advise was to get it written down and signed off, anything else?

Now if it does go belly up, what should the friend do "now" in order to properly persue the debt in the future.

If it's properly documented, then that should be enough to take him to court if he doesn't pay.

Mind you, if he doesn't pay, it's probably because the business has gone south, so he probably can't pay.

[walm]

The lender should get everything in writing (mostly for tax purposes) and then get comfortable that if it does all go tits up he should just write off the loan.
Otherwise he is unnecessarily betting the friendship on a random business.

I did something similar and there was going to be no way I would have asked for the money back if the business failed.
Their friendship was worth far more than that, although the sum was less than £15k, admittedly!

[PAULJ5555]

DanL said:

It's "only" £15k - why can't they borrow that from a bank?! Whatever the reasons are that prevent them from borrowing from a bank are the same reasons your friend shouldn't lend to them...

There is no interest to pay back as with a bank, the lending friend can afford to lend the £15k for 1 year without interest.

[anonymous-user]

PAULJ5555 said:

There is no interest to pay back as with a bank, the lending friend can afford to lend the £15k for 1 year without interest.

That's what friends are for - good man. Rule one is only lend money you can afford to lose - even the banks follow this rule. If that is the case then just add a clause to the contract that describes what needs to happen if the money cannot be paid back as agreed. Generalyl something like selling an existing asset like a car to raise the money, or agreeing on an interest rate for year 2 etc.

[walm]

thecook101 said:

That's what friends are for - good man. Rule one is only lend money you can afford to lose - even the banks follow this rule. If that is the case then just add a clause to the contract that describes what needs to happen if the money cannot be paid back as agreed. Generalyl something like selling an existing asset like a car to raise the money, or agreeing on an interest rate for year 2 etc.

Hi Mate, sorry your business is failing and you can't pay me back.
I'll just take the car.
Cheers!

Honestly - that just doesn't sound all that friendly!

[elanfan]

Does the loanee own a property? If so draw up a document such that if the loan isn't repaid a charge can be made on his house. It doesn't guarantee repayment but if he has a mortgage the mortgagees won't like it and he won't be able to sell without paying off the charge first.

[MoggieMinor]

One lesson I have learned in life. Don't ever lend money to friends. If this person was good for their money a bank would lend it them. 15000 is a lot of money to give away.

[joscal]

MoggieMinor said:

One lesson I have learned in life. Don't ever lend money to friends. If this person was good for their money a bank would lend it them. 15000 is a lot of money to give away.

I've learnt the same.

[SystemParanoia]

joscal said:

MoggieMinor said:

One lesson I have learned in life. Don't ever lend money to friends. If this person was good for their money a bank would lend it them. 15000 is a lot of money to give away.

I've learnt the same.

I learnt the hard way with a crispy £5 note... never again ( never saw the £5 again either )

Edited by SystemParanoia on Friday 2nd December 20:42

[dragging ass]

KevinCamaroSS said:

Written contract is a must. Included should be details of repayment schedules, interest rates and so on. Failure to make repayments would then be a breach of contract and pursuable as normal.

^ That. It should be documented legally with any payments etc to be made and when etc. Due diligence will also mean checking on the history and accounts of said business for any outstanding debts/credit or even other owners/Co owners) If the business failed then the lending friend will become a creditor (with the foreknowledge that if the business does fold they may not be first in line as creditor if it goes bust owing suppliers more)


From my own experience friendships do not survive lending or business partnerships 9 times out if 10. I've a bitter experience of wasting 2 years treading water and building a successful business only to be sidelined when it became profitable. All because of a lack of due diligence and not following the legal and paperwork side. I was lucky in hat the money I out in I got back - even though I was not supposed to be putting my money in merely my expertise and knowledge.

[All that jazz]

PAULJ5555 said:

DanL said:

It's "only" £15k - why can't they borrow that from a bank?! Whatever the reasons are that prevent them from borrowing from a bank are the same reasons your friend shouldn't lend to them...

There is no interest to pay back as with a bank, the lending friend can afford to lend the £15k for 1 year without interest.

What a crock of st (not what you wrote, but the situation). This has got disaster written all over it imho. If the business has been going for 9 hours, is successful, good returns and "has minimal chance of failing" then why is he needing to borrow £15k at all? He'll already have that in that business account if the company is doing all of the above. Also, what exactly is this £15k for?

And you'd really risk a friendship by drawing up complex legal contracts between friends all for this to save a few quid in interest when you can walk into any high street lender and have the money tranferred into your account the same day without any of the hassle? Do you honestly think the business owner is going to remain friends with the lender when he's put a charging order on his house to recover his £15k? Do me a favour...

This will all end in tears, I will guarantee it.

[MikeGoodwin]

Yeah fk that

One of them is a and the other is a mug. Ive seen it happen with people I know.

[Willy Nilly]

I have lent a good friend £10,000 to buy a used Merc tractor unit.

He got a quote from his finance company and we used that as the basis for the interest rate and repayments.

The loan is secured on the vehicle and I keep the title to the vehicle until the loan is repaid.

We have a contract on a piece of paper which we have both signed.

I get more return on my savings than the bank were offering and a nice steady income each month. He got money straight into his account to buy the truck and no fees were paid either was.

I'm happy, he's happy.

[steve2]

All that jazz said:

PAULJ5555 said:

DanL said:

It's "only" £15k - why can't they borrow that from a bank?! Whatever the reasons are that prevent them from borrowing from a bank are the same reasons your friend shouldn't lend to them...

There is no interest to pay back as with a bank, the lending friend can afford to lend the £15k for 1 year without interest.

What a crock of st (not what you wrote, but the situation). This has got disaster written all over it imho. If the business has been going for 9 hours, is successful, good returns and "has minimal chance of failing" then why is he needing to borrow £15k at all? He'll already have that in that business account if the company is doing all of the above. Also, what exactly is this £15k for?

And you'd really risk a friendship by drawing up complex legal contracts between friends all for this to save a few quid in interest when you can walk into any high street lender and have the money tranferred into your account the same day without any of the hassle? Do you honestly think the business owner is going to remain friends with the lender when he's put a charging order on his house to recover his £15k? Do me a favour...

This will all end in tears, I will guarantee it.

You did not read the opening post properly, he needs to borrow the £15k to buy the business,

[Ahbefive]

Likely to end in tears. Loans are better from banks or there are 0% credit cards etc. If his credit rating doesn't allow it then alarm bells should be ringing.