Commercial Lending to a friend

T

tvadera

Hi,

My friend is buying an existing business (has put an offer and his offer has been accepted)

He needs some cash injection to help him with the purchase price.

I am considering an option to help him out and provide some cash relief to him

What should I be considering?

Loan agreement?
Repayment terms?
Interest rate?

Should I lend to his business entity and get him to sign as a guarantor?

I am new to all this, I have helped friends in past but because he is buying a new business I want to make it more formal and protect myself if things go bad.

Has anyone helped friends before in business and what sort of steps you have taken to protect yourself?
 
You should see a lawyer.

Nut it out before hand.

Think about what form of security you will take - shares or company, assets of company registered under the PPS Act, 2nd mortgage on his house etc. Take a personal guarantee for sure.

Terms of the agreement - maybe a clause to take a charge over any and all of his personal assets as this could allow you to put caveats over his houses etc.

If things go wrong you would want to take priority over other creditors as much as possible.

Rate should be high to compensate for risk.
 
tvadera said:
10K - 20K

Regards,
TV
Click to expand...

Obviously not an amount anyone would be happy to lose. Def get something formally drawn up (costs for this on him) with as much security as you feel covers your exposure..better to take more than not enough. If it's a business deal he should not have a problem with your requests. :)
 
tvadera said:
Hi,

My friend is buying an existing business (has put an offer and his offer has been accepted)Your friend hopefully put a finance clause in as it would be foolish to go to contract without having his funds lined up

He needs some cash injection to help him with the purchase price.

I am considering an option to help him out and provide some cash relief to him Why?friendship and money don't mix IMHO

What should I be considering?

Loan agreement?
Repayment terms?
Interest rate?

Should I lend to his business entity and get him to sign as a guarantor?Will you sue him when he defaults?

I am new to all this, I have helped friends in pastHow did the earlier ones work out? but because he is buying a new business I want to make it more formal and protect myself if things go bad.

Has anyone helped friends before in business and what sort of steps you have taken to protect yourself?Family yes; friends no but as the other forumites suggest- get it locked down with a lawyer if you choose to proceed
Click to expand...

Sorry but this has got disaster written all over it. Why can't your mate get a loan for the purchase price? Why not go vendor finance and make it someone else's problem? Will you sue your mate if he doesn't pay you back?
I could drone on all day with the downsides and I see minimal if any upside for you.
 
cu@thetop said:
Sorry but this has got disaster written all over it. Why can't your mate get a loan for the purchase price? Why not go vendor finance and make it someone else's problem? Will you sue your mate if he doesn't pay you back?
I could drone on all day with the downsides and I see minimal if any upside for you.
Click to expand...


He will not remain a friend. Even if he does pay you back you can become the focus of bad blood, stress of having to make the payments etc.

Cheers
 
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