Real-life MMD: Should I act as guarantor for oldest friend's son? 28 November 2013 at 4:48PM edited 3 December 2013 at 5:35PM in MoneySaving polls 74 replies 14.8K views

kids9698

Absolutely not. Your friend is bankrupt. His son has no experience. You will probably lose your money.
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.

lionsixty

Your risk outweighs your potential gain.

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.

sugarbaby125

Say No. Practice saying no, then stick to it, no matter how guilty you are made to feel for refusing to guarantee your friend's son's loan. Your friend should understand your decision and drop the subject, as you are not intimately involved in their son's life.

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

chriswedge

No! And you should tell them they've got a bloomin cheek too!

gloriouslyhappy

oldtrout wrote: »

Your friend has financial problems of his own to deal with so I suggest he may not be totally aware of what this request for help might lead to.

£5,000 isn't such a massive start up amount, but the bank turned him down for a reason, and so must you ... do NOT act as a guarantor!!

As a true friend, you should sit down with them both and discuss the business plan. You may be able to offer advice, or help in some other way.

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..

JeremyCH

No but there are alternatives. Having been a bankrupt and needing a bank loan I was, of course, refused. However I then approached a lender of last resort called the Fredericks Foundation who lent me the money I needed for a business I wanted to start. The loan was done on a strictly commercial basis and reasonable commercial interest rates were charged. The key to their process is that whilst they do all the financial checks and you have to put in a proper business plan they do not use a credit scoring system. You are invited to a loan panel (usually 3 people) and they question you about your proposal and you. The loan is agreed or refused on the basis of the business plan and the individual. I must deeclare an interest as I sit on some of the loan panels and there are other lenders of last resort around but it is definately well worth apparoaching them.

As a PS I have paid them back and my business is going from strength to strength

bogwart

There seem to be a lot of very sour and pessimistic people here. I would certainly not write off the prospect so readily.


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.

Jelly_Biactol

MSE_Debs wrote: »

I'm not convinced his son has the business acumen to make a go of it

I think, deep down, you already know the answer: NO

NRTurner

If you have £5000 to spare, then rather than doing it through a bank, why not loan it directly? Especially if the person you wish to loan to is willing to sign a contract. You could also try to formalise it through a peer-to-peer lender, although I have very little experience with these.

If you don't have £5,000 to spare, then don't agree to anything.

rallp54

Youngdoug is ABSOLUTELY spot on.

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.

youngdoug wrote: »

Hang on - I wouldn't rush to say no, though I would be cautious.

First, banks are not in the venture capital business, so they are very reluctant to lend on start ups. That's why they want a guarantor.

Secondly - you say you don't have confidence in the business idea. Well, here's where you can contribute. If the son is on JSA (or ESA) or can get on it, then he can qualify for the New Enterprise Allowance through which he can get a £2500 startup loan without a guarantor or security. There are ways to get more loans or even a grant too.

Google 'new enterprise allowance' (sorry, new poster - I can't post links)

To do this he will be assigned a business mentor who will work with him to create a solid business plan.

If he hasn't got a detailed business plan already then he shouldn't be starting a business.

If the son is not on JSA or can not get on it, then there are other sources for loans and grants for start ups, all of which need business plans. Google these or, even better, start here:

Google 'government business support helpline

Google 'government business finance support finder'

I volunteer as a business mentor for the NEA. Helping your friend's son this way is far more valuable than just guaranteeing the money. You never know, he might have a rock solid business plan and be the new google - in which case you can start discussing equity participation :-))