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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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If he's really keen on this business idea, there are loads and loads of people out there who can give him great advice for free, or for not very much money. Can he start the biz on the side of a day job? Ramit Sethi's 'Earn $1k on the Side' course may be for him if so. Or Brendan Burchard has loads of really great free advice on building an 'expert business'.
In short, your friend's son should be able to get that money together himself through various (legal!) means, even if he has to take a few stepping stones (otherwise known as learning experiences) up to his business.
No, just realistic people who have seen literally hundreds of stories just like this on the boards over the years that have ALL ended in disaster and wrecked friendships.
OP, the answer is an absolute "no". For you it is lose lose all the way to the poorhouse.
IF YOU really want to help a friend/his son then only if you have some money saved/spare, then give anything you can up to the 5k to him/them as a gift.
This way you don't have to worry about it being paid back and your doing what you can to help them when they've asked.
The thing is, once you have entered into the guarantor agreement, you can't change your mind and limit your losses when you see the thing going down the pan. Also you are not just a back stop for when the lender has tried and failed to get the money back from the son, you are jointly and severally liable - which means that the lender can come straight for you if they see you as a better bet.
If you can afford to set aside £5k to lend him the money and set up a repayment vehicle for him to pay you back AND you can afford to write the money off if he doesn't, fine, go ahead. If you can't afford to do that, then don't risk guaranteeing £5k plus interest at potentially exorbitant rates.
I am always reminded of my dear friend who stood guarantor on a flat for a friend she had known and trusted for years, who had fallen on hard times. The rent was covered by housing benefit so the risk was low... or so she thought...
The problem was that when the HB landed in his bank account he used it to pay off other creditors who were chasing him (which she didn't know about).
From the sounds of it, you have no idea what debts he may have, and you have no control over what he does with the £5k once it is in his pocket.
Help him to find funding, help with a business plan, but don't put your own bank balance on the line unless you can afford to write the money off.
When you look at the majority of the really successful business people their first businesses were disaster zones The reason why they were successful was that they learnt from their failures. I have seen figures that suggest 50% of new start ups do not see their first birthday. Imagine if they had all ended up deep in debt and had to dig themselves out just how much unhappiness that brings!
It is far far better to start small and I mean nano small not micro small and see it as an apprenticeship program. Build up step by step learning as you go along. You learn the necessary skills, develop the mindset and character needed to succeed in business as well as building up the contacts and experience. Not only that but it tests the idea and the person to see if either of them are capable of success. If the person is not capable they can find a job instead if the idea is not so good it is possible to try another one. However by serving this kind of apprenticeship you can learn from the experience and you not drag yourself or others into a financial mire.
If this young man is really destined to set up a business then he will find a way to learn what he needs to succeed. Bookkeeping and marketing are two of the most common struggles. Experience speaks volumes to banks and other lenders.
If not being able to borrow such a small sum of money is stopping him then to be honest he should not be thinking about setting up a business at all. Someone who is serious about creating a business and has the passion and drive to succeed will find a way through, over or round this kind of obstacle.
If the result is that blame gets thrown around then to be honest that is a sign of someone being unable to take responsibility for the situation they are in and therefore evidence that they are not a suitable person to go into business.
Like I said not lending them the money and forcing him to find another way to reach his goals is probably the biggest kindness that you can do for both father and son. Saying no is not all about taking care of yourself.
You know the story of the butterfly that was helped out of the chrysalis. The helper saw themselves as rescuing the creature from its struggles. The problem was that without those struggles it was not able to become the best butterfly possible. You are at risk of being that kind of helper if you lend him that money.
The dad's so financially incompetent that he's had to take out an IVA and son looks to be going the same way IMO.
Avoid lending to this person unless you enjoy throwing your money down the drain.
Friendship isn't about losing your money - if this person was a real friend they would not have put you in this position.
It also brings me to a Facebook status (yes, Facebook) that my friend put – “Me and ‘wifey’ are struggling to find someone who earns £15k AND owns a home. Could someone please act as guarantor on our mortgage application?”. Erm…yeh, sure!