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

stmartinsdiver

Only lend it if you can afford to lose it, and then only after seeing a business plan. .

Spatton

No, absolutely not. I've established my own business and it takes a lot longer than you think before you generate any profit. The chances of you getting your money back in the next year are practically nil. Interest rates (even the extortionate ones of payday lenders) reflect risk, so I would suggest that you take your cue from the people who know about these things and have decided not to lend to him.

ayayay

No,

You're not just at risk of losing £5k, but on the hook for accrued interest, default payments, legal fees etc etc.

IF (and its a big if) you want to go ahead you would be better lending the money yourself (with a suitable binding agreement), but be prepared to lose it all.

Maat

You clearly have massive doubts about this and, while you want to help your friend's child (understandably) this transaction is obviously not for you. If you had loads of money and a few thousand wouldn't matter then maybe, but this is a big ask if you have to consider the consequences. It's entirely possible that this young man may have the business acumen to make good, but you clearly don't know that.

Go with your instincts and frankly you don't even need to lie about why you're refusing. A simple statement of 'I'm not comfortable with such an arrangement' should be enough. You have the right to refuse and not to even give an explanation.

minicooper272

I suppose you have to think of this in terms of what you can afford. Can you afford £5000 if push came to shove?

Your friend has offered to put a contract in place promising to repay you if his son defaults, which is something to bear in mind.

If you can afford it, then it sounds like it could be worth giving it a go - you have your own security from an old friend. If you can't afford it, then your friend will understand. Is your opinion on his business acumen based on his attitude growing up (which might have changed), or is it how he is now? Is it even simply because you don't understand the business idea?

As others say, there are also several start-up charities out there, willing to loan money to new businesses and also provide grants. If he looks around, he might find something else to plug in some of the money gap.

rasg

I would be very interested to know how old the son is and the nature of the business. Business plans mean nothing. Just overly optimistic ideas of how a business should go but they are an indicator for the banks as to how serious somebody asking for a loan actually is.

I am wondering which type of businesses would only need 5K as a start up?

All my instincts are to simply say no. Especially if it is a friend.

Having said all that I had my first startup when my Grandmother guaranteed a loan for me many, many years ago. Having said that we kept it in the family and the bank also backed my guaranteed loan with an overdraft for the same amount. Everybody deserves a break but I think your friend is putting you in a very awkward position and unfair.

Go with your instincts if you can afford to lose the money but I have a feeling you agree with everybody who has responded to your quandary.

Alcaig31

The answer should be "No". A guarantee is the easiest form of security that a lender can take, BUT it is also the most difficult to realise. All too frequently, the guarantor has to pay up after much pressure from the lender.

zigzigzag

Please don't do this.
Mixing business and friendship is a sure-fire recipe for disaster.
You say this is one of your oldest friends - then you don't want to lose him, and getting involved in this will definitely raise that possibility. If the son has been turned down, there's a reason (I don't mean him, just all the circumstances - market, business idea etc etc).
I would suggest the son work and save up the money he needs to get started.
Find a way to explain this to your friend in a positive way. As a true friend he should understand. If he doesn't, hopefully he will eventually.

tallgirld

Been there, done that, lost thousands. Since I stopped all that nonsense I have saved thousands.

Just to be clear my answer would be "NO"

mr-tom_2

I never lend money as it's a guaranteed way to kill a friendship. I will however give money as a gift.

If you can afford £5k and are willing to part with it, then by all means give it, but otherwise avoid.

If you felt he had the business acumen, then I'd suggest treating it as an investment in the business, maybe for 20% ownership! but from what you say, that doesn't sound likely to be fruitful.