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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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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.
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.
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.
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.
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.
Just to be clear my answer would be "NO"
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.