Thats a really tricky situation. In most places, a bank WONT loan $ to a start up business, they expect to see purchase orders and an already existing line of credit somewhere to prove you are a good risk. Otherwise, it usually just doesnt happen. Same with grants for starting a new business, very, very hard to get.
I would ask the person for a full on business plan, earnings projections, debt repayment plan, a very decent sized stake in the company, and definatley have legal docs drawn up. This economy is pretty darn tough right now and 30 grand is NOT something to take or give lightly (not that your friends are doing that).
90% of all new business' fail in the first year, which is a very high risk to the lender, and that means probably no profits for the first year (at least) to even begin re-paying the loan.
Personally, if I was loaning that kind of money, I would treat it as any other business venture- explain to the lendee that this is a business transaction outside of the personall relationship and it will be treated as such. If some kind of colateral is not available, I would be leery. It would have to be one HELL of a business. Honestly, 30 grand isnt much to start up a business, but maybe they have other $? A low cost for start up usually means low returns, so I'm not sure it would be worth it to me.
I would also ask who else they have gone to for funding, and why anyone else has said no.
Also, the lenders really need to ask themselves, Are we really wanting to go into any business right now? And they will be in business, if just because they will be concerned with when they will be re-paid, or what their returns will be, and when. They will want to know whats going on with their money at some point.
A bad loan can be write-off tax wise, but can also become a tax burden if they become successful. Are they ready to be part of a corporation? Are they ready to accept financial responsibility if someone has a bad experience with the new business and sues? (yes, if they loan $, they will be implicated in any lawsuits by the lawyers, its just how biz is).
Have they considered that they will responsible for part of the corporate taxes if they become vested/named partners? Not to mention, if they do become a stock holding partner, they will be held responsible as owners of the corp if anyone else screws up (more tax implications).
Its not about 'being good for it', if they were, they would already have the $ themselves, or would have planned this biz out for enough time to have maybe saved the $ to start it up. If the biz fails, how are they gonna pay it back, if they are having to borrow it in the first place?
Critical thinking and far forward planning are very crucial for anyone starting a biz right now and for anyone wanting to get involved with a start up. If the person lending is mostly going by 'feelings', that, in my opinion, is a very BAD reason to loan money to a friend, family memeber, or anyone else. The decision should be based on solid plans and a very detailed business plan that goes at least 3 years into the future with realistic projections (not just 'we hope to be at this number' projections).
Anyhow- thats my .50 (sorry I went on so long, my hubby and I are in the biz world and have to deal with investors on a daily basis
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