Have / Would you borrow or lend money to/from a friend for a business?

[Nifty-Chicken]

I have two friends:

The first friend is starting a new business and he needs to borrow $30,000. The second friend has the money and she's debating on if she should loan it to him.

They have asked me what I would do, and I'm not sure. I hear horror stories all the time about friends and loans, so I'm inclined to tell them it isn't worth it. She thinks he is "good for the loan" and isn't really worried about him being able to pay her back or about it causing troubles in their relationship.

So, what would you do? Have you ever loaned or borrowed a large amount of money from a friend, especially for non-personal stuff (like starting a business) or know anyone that has?

 

[Baymule]

That sounds like an excellent way to either cement a wonderful friendship or how to end a wonderful friendship. Being "good for it" is just not good enough. Your friend doing the loaning needs collateral worth at least if not more than the loan. Why can the friend needing the loan not go through conventional methods of securing a loan? Bad credit? No credit? No down payment? A risky business? Even under the best circumstances, a start up business can be hard to get going, make money, or pay expenses. Your friends need to really think this one over. And you don't need to get in the middle because if the whole thing goes south, you could lose both friends. Don't mean to sound negative, just realistic.

 

[mississippifarmboy]

JMHO now Nifty...

Bad idea.

Been there, done that, got the T-shirt.

 

[EmtheFishLady]

In any business you don't really start turning a profit for at least a year or two...so paying that money back will take awhile. I'd say don't do it. It's going to cause issues at some point.

 

[RThomas]

No and No.

 

[Lunachick]

We (DH & I) loaned 25,000 out to a friend so he could carry out his business through a rough spot. He's a paving contractor and has been in the business 40+ years. We knew he was good for it, but things can happen...... We drew up a paper and had him sign it. He paid us back a year later. I don't think I would do that anymore, we just happened to be lucky with this guy.

Perhaps this friend has some legal connections.....and can draw up some paperwork and have him sign it? I don't know how binding that is, might be worth a try.

 

[ODS-n-ENS FARM]

Quote:

If its a good business plan she could be a silent partner until she is paid back. Having legally sound documents to protect both is also a smart idea.

 

[Orchid]

Nifty, I'll PM you.

 

[bluesub]

No, no, no and no. Unless you have some kind of collateral and legal documents. At that sum of money, it pays to get a lawyer involved. This is a new business and many things can go wrong, especially unanticipated things. We loaned a large sum of money to someone who promised to pay us back every month. I insisted that we get some kind of collateral and a lawyer. My husband was not happy paying a lawyer, but we now own 70 acres in Washington State. The guy is still working on getting his business off the ground...

 

[Katy]

Never have and never will. On the flip side I'd never ask a friend or family member for money either.