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

[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.

[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.

[PAULJ5555]

DanL 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.

Fair enough. However, I just looked - the interest cost of £15k over 12 months with Barclays for me is a touch over £500 - call it £45/month in interest plus the repayment.

Unsecured personal loan, with no friendships as risk, 7.3% APR. If he can't fund that then there's something wrong. APR drops to 3.9% if the loan is over 24 months - total interest costs are higher for the full term by about £100, but I think he could pay back at the end of the first year in full with just one month's interest payment as the fee.

I can't see why anyone would borrow from a friend except if they can't get the money from a bank, but I don't know any of the parties concerned and it's none of my business really.

Having spoken with them both and the subject of a bank loan came up, I think it boils down to a long term friend wanting to help out another, there will be no interest to payback and also there will be flexibility paying him back that he would not get with a bank or loan company.

As said in a post above will the one friend take the other to court to get the money back - Who knows.
It will be a test of friendship and if the guy messes the other around I suppose the friendship of 20 odd years is not that important that he looses a friend. If this happens I suppose it opens up the door to the other to take him to court as the friendship will be no more.

[PAULJ5555]

stevensdrs said:

If you have 15k in cash and would not be overly upset if it went on fire and burned to ashes, then you can afford to lend it to a friend. If your expectation is different from that then don't lend it to anyone.
Many years ago I lent 5k to a friend for his business. I never expected to get it back and wasn't disappointed not to. What did boil my p!ss was when he appeared after 10 years to ask for some more.

I would have told him yeah fine no problem mate, when do you need it and then just would of strung him along, every time he asks oh just waiting for the bank mate its deffo coming. Hopefully he would have a deadline to meet and you could have kept him going and going.