Lending £50k to a person I know, is there any legal template in place?

Voyager2002

No one else has mentioned this, but in the OP you indicate that he promises to give you back your original loan with interest. Now, unless you are a licensed money-lender it is a criminal offence to lend money for interest. No, you are not likely to go to prison for this, but it does mean that if you attempt any kind of enforcement if/when repayment does not happen you will be unable to do anything.

In short, you have two options. You can hand over the money in cash because you trust your friend; or you can walk away. If your friend chooses to return the money he will do so, but no matter what you do you cannot force him to repay you if he chooses not do.

R_P_W

Do you see this as a loan or an investment?

Either way sounds like a efficient way to potentially lose £50k.  I'll keep an eye out for your post in 18 months time looking for advice on how to recover it.

ileven1225

Hi everyone, thanks for the advices. Now I decided not to lend any money to my friend as there is no way of protection as much as a licensed approved lender. Even a licensed lender might have difficulty to get money back, I do not think I got any higher chance if my friend decides not return the loan at all.

Thanks for everyone's advice which is quite consistent view and I guess some of you must learn in a hard way and just do not want me to be in a similar trap. Thanks.

ileven1225

got one more question, what if I am the part of his project and got shares proprotional to my input (e.g £50k)? In this way, i can control the process and work as a partner rather than a lender? What sort of paper  work or contract I need to use and pay attention to?

Jami74

ileven1225 said:

got one more question, what if I am the part of his project and got shares proprotional to my input (e.g £50k)? In this way, i can control the process and work as a partner rather than a lender? What sort of paper  work or contract I need to use and pay attention to?

Was that your idea? Or did your friend suggest it when you said you couldn't lend the money?

Even if you are a partner, if the business fails you still lose your money. And if it is a success, how easy will it be to get your money out? 

It sounds like you really want your friend to have your £50k so just give it to him and be done with it. Either he'll give it back, or he won't, paperwork or contracts won't make any difference.

On the other side of things, I could really do with £100k, it would be life changing and I could easily pay it back over a few years. I have friends who could probably lend it to me but I would not dream of asking them. It would be very disrespectful. 

ileven1225

Jami74 said:

ileven1225 said:

got one more question, what if I am the part of his project and got shares proprotional to my input (e.g £50k)? In this way, i can control the process and work as a partner rather than a lender? What sort of paper  work or contract I need to use and pay attention to?

Was that your idea? Or did your friend suggest it when you said you couldn't lend the money?

Even if you are a partner, if the business fails you still lose your money. And if it is a success, how easy will it be to get your money out? 

It sounds like you really want your friend to have your £50k so just give it to him and be done with it. Either he'll give it back, or he won't, paperwork or contracts won't make any difference.

On the other side of things, I could really do with £100k, it would be life changing and I could easily pay it back over a few years. I have friends who could probably lend it to me but I would not dream of asking them. It would be very disrespectful. 

It's my idea, i haven't told my friend my decision yet. I think to be a partner I can learn from the business he is doing which might be benefitial to me. To be a partner, I believe a contract shall be critical to cover how to get the money out if making profits and what needs to do when losing money.

I am investigint options and if I like his project why not becoming a partner?

Grumpy_chap

ileven1225 said:

I am investigint options and if I like his project why not becoming a partner?

Because it sounds like you do not have enough information on the business plan and you cannot afford to lose the £50k.  If you can afford to lose the £50k and the proposed business partner can provide a robust business plan then this may be worth consideration.  I suspect, if the proposed business partner had that robust business plan, they would simply obtain finance from a bank.

Sncjw

Best off talking to solicitor and an account if your wanting to become business partners. 

bargainbetty

If you go into partnership and it fails, be sure that the business is properly structured to protect your other assets from seizure in the event of business debts. 

Honestly, few businesses need that level of set-up cost without a solid enough business plan to get proper investment financing. Ask yourself why. 

pjcox2005

Grumpy_chap said:

ileven1225 said:

I am investigint options and if I like his project why not becoming a partner?

Because it sounds like you do not have enough information on the business plan and you cannot afford to lose the £50k.  If you can afford to lose the £50k and the proposed business partner can provide a robust business plan then this may be worth consideration.  I suspect, if the proposed business partner had that robust business plan, they would simply obtain finance from a bank.

The majority of start ups are not funded by banks, so saying if the idea is good a bank would just lend seems simplistic. Potentially they may lend if you've given additional security like your home, but many individuals may not want that as a purpose of a limited company is to limit liability.

I'm not saying invest, your friends idea and capability may both be rubbish, i just don't get the constant no or extreme negative response (although I accept you should look at the threads on lending to friends which can end badly). Some of the best entrepreneurs succeed as they are not risk adverse like i would be - for example, what's app need $250k from 5 friends/investors to assist it's growth - think they probably got a good return considering it's now valued in the billions.

If you go as a director of a company, then get a shareholders agreement, advice from lawyers and accountants but realise it opens you up to even more risk potentially than just £50k if you're business partner isn't trustworthy. The uncertainty you have suggests this isn't something to invest in but only you can make that decision.