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Real-life MMD: Should I act as guarantor for oldest friend's son?
edited 3 December 2013 at 5:35PM in MoneySaving polls
74 replies 14.8K views
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Your friend and his son could both look for second and even third jobs to save the money they need to start up the business.They could also both just cut back on their personal expenses. How much do they believe in the business. Are they willing to sell some possessions to raise the money. If they are not willing to work for it or make sacrifices for it, then are they really going to be willing to work hard at the business to make it work. It shouldn't take long to save £5k.
The fact that they haven't managed to save any money in their lives doesn't fill me with confidence that they are good at managing money. Both your friend and his son have a bad track record.
To be honest it's a little cheeky that they're just talking about loan repayment considering the size of your personal risk; if I was being approached for funding in that way, and considering it as a possibility (even though in this case I'd say no), I'd be looking for a profit share or cut of the business up front to balance my risk - you can factor in "mates rates" at that stage but this isn't really a favour situation.
Additionally, if the son really has the desire to start up a business and what it takes to keep that business successful and profitable then I would expect him to be able to come up with a figure like £5K without your help.
Whilst it isn't really a small amount of money to an individual person he could achieve it with personal credit, asset sales, waiting/working longer or a second job. A bank loan in this way feels like the easy route, which would be a red flag for me.
On the personal note; your answer of "no" should be easy for you to make, if the friend makes that awkward for you then I wouldn't consider them a friend.
There are very sound financial reasons why the son is unable to secure a loan. Take heed. His finances are not your responsibility, or the responsibility of his parents. He is an adult and needs to find out for himself what financial help is available for him to access if he is serious about starting his own business. The vast majority of new businesses will fail in the first 24 months, so he needs all the advice and support he can possibly access. Just wish him every success, but do not get financially involved
Very sensible advice from Old Trout! The advice I would offer, after saying 'no' gently to the father, is to suggest organisations like The Prince's Trust. if the son has a sound business plan, PT will make him a grant, and supervise his business venture, at least from a distance while watching his progress and protecting their investment. If his business plan is not sound but he has a viable business idea, they will steer him towards free organisations who can help him draw up a business plan.
Unless you have around £10,000 to give away and enjoy the prospect of years of hassle dealing with creditors, walk away from this 'business opportunity' your friend has set before you.
If you're tactful and your friendship is sound, saying 'no' should not be too awkward or cost you the friendship - just be bold and come right out and say 'no', don't dress it up so much they're not sure what your position is. Good luck..
As a PS I have paid them back and my business is going from strength to strength
The fact that his lender wants a guarantor could be due to several factors, not least that his father has an IVA in place. You don't mention the boy's age or any experience. I am not sure that any agreement made by his father would be legally enforceable - my guess is no.
You have to decide for yourself whether your friend's request is a reasonable one or not. It's not an easy question, but I guess that's why it's called a dilemma. I certainly wouldn't be so quick to arrive at a negative decision for a friend of mine.
If you don't have £5,000 to spare, then don't agree to anything.
There are lots of schemes to encourage and sponsor start-ups, particularly if the idea does not require large capital. I'm not surprised banks aren't interested, but if any of these schemes also won't help, then there's a fair chance that the idea (or your friend's son) are unsuitable and you would be well advised to steer clear.