Loan to a friend 6 April 2021 at 5:36AM in Loans 25 replies 3.1K views

007james

macman said:

You cannot in reality enforce how she spends the loan-all you can do is act when the repayments are due.

The loan is for the shop lease expenses and no other venture. We both have a mutual understanding. If I let her use it for any reason then if those ventures fail, where does that leave me? That's why I want to ask for it back. 

007james

-taff said:

What do you expect her to do to hurry things along? If the council aren't ready ot able to get this sorted, what makes you think phoning and phoning is going to make any difference?

If there's no early repayment clause, then it's up to them when they pay. It doesn't matter what the friend 'clearly knows'. 'Clearly knowing' is not part of a loan agreement. I hope this friend pays you back. Although, if you are such good friends and they have paid you back before, why don't you talk to them about this intead of here?

Call the council to enquire. She used solicitors to advise on the lease so it's also their job too. 
Point taken about discussing with her directly.

007james

Sometimes a problem shared is good.
Thank you all for your input. 

phillw

007james said:
The loan is for the shop lease expenses and no other venture. We both have a mutual understanding. If I let her use it for any reason then if those ventures fail, where does that leave me? That's why I want to ask for it back. 

I don't think a mutual understanding will help you whether the loan was used for the shop lease or not. If the ventures fail then they may not be allowed to prioritize your loan payments, even if they do use it for the lease.

You can ask for the money back, but that might antagonize them as they may think you don't trust them to do what you had already agreed. If they are flaky enough that they would use the money for something outside your "mutual understanding" then they don't care what you think anyway.

macman

007james said:

macman said:

You cannot in reality enforce how she spends the loan-all you can do is act when the repayments are due.

The loan is for the shop lease expenses and no other venture. We both have a mutual understanding. If I let her use it for any reason then if those ventures fail, where does that leave me? That's why I want to ask for it back. 

In which case, you can only rely on her goodwill to use it as 'understood'. It's not about you 'letting her use it'. The money is in her possession now, she can spend it all on booze and fags if she wants to. The only binding aspect of your contract appears to be that she will start repaying on a certain date, but it's not even clear what your sanctions are if she fails to do that. No one can advise you on that without seeing the exact wording of the contract you both signed.
A loan based on 'mutual understanding' is fine until such time as trust evaporates, and that is presumably now the situation, or you wouldn't be asking this question.
As the lender, your only concern should be timely repayment, not how the money is invested.

newdriver101

007james said:

Would really appreciate some advice...
After researching all the potential problems that can arise from loaning money to a friend, I decided to loan money to a friend to open a shop. She never asked for the money but having seen her entrepreneurial spirit and how she had set up her own catering business with little resources, I felt inspired to help her. 
We agreed on an amount which would cover her start up costs incl basic fit out of shop. She found a low rent council owned premises and they accepted her offer in Aug 2020. We agreed terms that she pay me back starting May 2021 over 3 years. I assumed she would have started trading by then. Due to COVID and other excuses by an inept council she still hasn't signed the shop lease. I also feel she is not doing enough to hurry the process along. In the meantime she has started to produce some sauces which she is having some success with which is being sold in other shops and a potential wholesale deal. 
This is my question: If the shop lease is not signed by May 1st, shall I ask for the full loan back so that we sign another loan agreement with new repayment terms? I am expecting the full balance to be there as she hasn't signed the shop lease yet. Her accountant witnessed the last loan agreement as I wanted to do everything right. I suppose my fear is that she may start using the loan for her other business ideas rather than the shop which is what I loaned the money for. There was no ambiguity about what the loan was for and extensive emails between us regarding the shop lease. I loaned for a shop as there is a gap in the market for the produce she will sell and I know she will make a profit. 

1. Was the loan agreement specific about the purpose of the loan?
- You say “Start up costs incl basic fit out of shop” - whilst “basic fit out of the shop” is clear - reference to “start up costs” is quite general and could arguably include producing sauces to sell in the shop...
You say there was no ambiguity about what the loan was to be used for because of extensive e-mail communication but if the specific purpose was not set out in the loan agreement then there could well be ambiguity.

2. Did you have an agreement that the lease was to be signed by 1st May?
- unless you had an agreement that the shop lease was to be signed by 1st May it’s hard to see how you can justify demanding the loan back by that date - particularly as the delay has been outside her control.  I assume she has kept you up to date on the situation.

3. New agreement?
- Yes, you could suggest a new agreement given she was due to start repaying your loan in May 2021 and may not be able to BUT given the current situation it seems to me that you would just need to amend the payment terms to start later rather than enter into a brand new agreement.  

4. Are you aware she has used the loan for something else?
- Assuming the loan agreement was VERY specific about what the money was to be used for AND if you know for sure that she has used the money for something else - you could say she has breached the contract and demand your money back.

If your main concern is that she may use the money for something else - the best course of action may be to have a discussion about current status + suggest an amendment to the payment terms given the Covid situation and that the shop is not open.  During the course of the discussion you can ask about the “new” business + then ask if she wants to enter into a new agreement in relation to both businesses or if the money is still sitting into her account and it is just the repayment terms that need to change.

DCFC79

Regarding hurrying the process along, that could be down to the council, a backlog of paperwork thats in front of your friends application.
Speaking to the solicitors might see what the holdup is.

justworriedabit

007james said:

Sometimes a problem shared is good.
Thank you all for your input. 

Good point and one I do. There are some good people here that will try and others I will just ignore.
Yes, talk to her.

007james

I really do appreciate everyone's input. 

Update: As 1st May is looming and her answers about progress with the lease are sketchy. Saying she has authorised her solicitor to sign the lease on her behalf why still the delay? Something doesn't feel right.  Anyway I asked vis email for the full loan back and new agreement to be signed once the lease is signed. She has got back saying she will honour the repayment date of 1st May. So basically ignoring what I have asked. I will be speaking to her nearer the time. 
There is another problem in that she receives Universal Credit and with savings/ capital over £16,000 she will lose that benefit. It's better for her financially to give it back until the lease is signed.  

Clive_Woody

007james said:

I really do appreciate everyone's input. 

Update: As 1st May is looming and her answers about progress with the lease are sketchy. Saying she has authorised her solicitor to sign the lease on her behalf why still the delay? Something doesn't feel right.  Anyway I asked vis email for the full loan back and new agreement to be signed once the lease is signed. She has got back saying she will honour the repayment date of 1st May. So basically ignoring what I have asked. I will be speaking to her nearer the time. 
There is another problem in that she receives Universal Credit and with savings/ capital over £16,000 she will lose that benefit. It's better for her financially to give it back until the lease is signed.  

I think a phone call to discuss this with your friend would be a much better solution, email is impersonal and words can be misinterpreted. Call her and tell what you've said here. Make it clear that you're still happy to give her the money when the lease is agreed and she needs the funds.

After the call you can always confirm the agreement by email so you have written confirmation, but dragging this out by backwards and forwards email is only going to cause frustration.