Advice needed - Investing in start up.

Discussion in 'Starting a Business' started by Sernc_99, Mar 16, 2010.

  1. Sernc_99

    Sernc_99
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    I have a long time friend and former co-worker that would like to start a local delivery & courier company. (An industry we are both familiar with) He has very minimal to zero startup capital. He needs $5000 in startup capital to obtain the needed licenses and insurance so he can start soliciting to potential customers. This man is currently out of work and down on his luck so it is as much of me helping him out in a tuff time as it is a "business loan." I know I should not do business with friends but I have agreed to help him out. This money is disposable for me.

    My question is what I should ask for in return for this business loan. Should I charge interest, should I ask for an ownership stake in the company or combination of both?

    This is not a project I want to be involved in long term, so what kind of exit plan should I install in the loan agreement?

    Thanks for any advice.
     
  2. Fergal

    Fergal
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    Welcome to Business Advice Forum Sernc_99 and thanks for asking your business questions. If you really want to help your friend out and you can afford it, you could offer him an interest free loan with an agreed repayment schedule. If you are doing this, you may also offer to advise him on the running of the business or at least act as a sounding board when he wants to discuss aspects of running the business. Setting up and running a new business can be quite lonely, so this is something that he would most likely appreciate.

    If you wanted to be a little more involved than that, you could ask for say a 10% share in the business, in return for providing the business loan. Again, you would have an agreed payment schedule and you could include a term in the agreement that you surrender your 10% share, once you have been paid back say $6,000.

    The two options suggested above are something that you could do for a friend. If you were investing the money with a purely business perspective you would most probably look for a much greater share of the business and seek an option to sell your share at an agreed time in the future. If you were taking that approach I would most probably advise that you do it, with someone other than your friend.

    As you have mentioned, doing business with friends or lending money to them can be risky. I once read that you should never give any one a lend of something, that you expect to get back. That way you don't lose the friendship if the item or money is not returned to you. It can also help to get the agreement in writing and signed by both parties, so that you have something you can refer to later on, should a dispute arise.

    Please post back with your thoughts and good luck with it.
     
  3. seanstevens

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    As it is more a case of helping a friend that a business proposal I'd be tempted to go with the loan. You will however need to be clear with yourself that that there is no guarantee you will get your money back and how far you are willing to go if that is the case.

    If you believe that your friend could make the business work then taking a small % could be a good way to go. I'd say 20% as this does give you a little influence should you need it in the future and would hopefully bring you home some dividends. Owning % of companies like this could be a good way of building your own portfolio in years to come, there is always room for more investors in startups.
     
  4. Stuart12

    Stuart12
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    Consult any professional. You may not get proper guide in here.
     
  5. nicerose

    nicerose
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    i'm new here and want to get more iformation about my business, my online store is www .bizfoco .com
    would you tell me how to promote my business here?
    thanks.
     
  6. seanstevens

    seanstevens
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    Hi nicerose, I would suggest you start by introducing yourself in the intro section of the forum and then posting some specific questions, you will get a much better response.
     
  7. houstonVijai

    houstonVijai
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    Sernc_99,

    I can either way. It depends how close relationship you have with your friend and how much control you want to have with the new business and you care to have your money returned or not.

    If you loan somebody, you don't have any control over the money and they get to use it as they want. If you friend got your loan and went to las vegas you cannot do anything about it unless you have a agreement to get the money back in 6 months. Still without job he won't be able to pay and you relationship will be in trouble.

    Instead if you lend for the business and you have stake and saying or voting or ownership control, you can try to set the path of the company or business and see it gets profitable and you are sure to get your money back.

    As I said it depends on how much control you want and how flexible you want to be with your friend. ALl matters.
     
  8. Sernc_99

    Sernc_99
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    Thanks for all the great advice here.
     
  9. Fergal

    Fergal
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    Thanks for posting back Sernc_99, have you made any decision as to what you will do?
     
  10. eddane

    eddane
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    You need to get as much equity as possible.

    Ed
     
  11. DeniseTaylor

    DeniseTaylor
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    Hi

    It sounds to me like you just want to help your friend and are looking for a way to make it work. In which case, I think it's best you just loan the money.

    What I really want to bring up is the friendship issue, though. I've been through this several times, and these types of arrangements can really be devastating to relationships. So I think if you come up with a plan that has as much flexibility as possible, and numerous escape clauses, you would be wise to devise such a thing.

    Let's say times are rough, and your friend has a tough go of it. If you build in options to deal with such times, you both know up front what those options are so there's no question later. Let's say he can skip a payment, but put the payment at the end of the loan, that would be one example of flexibility.

    Here's where the friendship problems come in. One side thinks is concerned about advantages being taken, and the ramifications of that can be quite different than you expect.

    Now you may be perfectly willing to lose the $5k you are loaning and you may be perfectly willing to kiss it goodbye without it effecting your relationship. But sometimes it's the other person who feels guilty and can't let it go. If you are too good to them, they will start to find fault with you and start alienating themselves because deep down inside they think they're hurting you. In such a case, it is important to have ways for the person to rectify matters so they don't feel like they're taking you for a ride.

    So my input is - keep these factors in mind and establish a way around them up front so your friendship remains in tact.
     
  12. Fergal

    Fergal
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    Welcome to Business Advice Forum Denise, thanks for joining and posting such excellent advice.

    That's a very interesting concept and something I hadn't considered before. There are great gems of wisdom in your post, for anyone considering doing business with a friend.
     
  13. buytradebiz

    buytradebiz
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    Hello my dear friend ..
    It is very good to you start a business with your friend and as your question i suggest you that should partnership with your friend .
     
    #13 buytradebiz, Apr 15, 2010
    Last edited: Apr 15, 2010

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