Rate to loan a Friend Money for SB? - 2CoolFishing
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Old 04-10-2018, 10:37 AM   #1
Blank Czech
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Rate to loan a Friend Money for SB?

A close friend of the family has asked if we'd like to be involved in his next business dealing. He wants to open a franchise and the business plan seems good enough to have my interest.

What is a fair rate for lending the money? There is some equity of the business involved too.

Additionally, does anyone have some lawyer recommendations for reviewing the paperwork associated with this type of deal?
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Old 04-10-2018, 11:45 AM   #2
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I would suspect a 10% interest would not be out of line... A professional loan source would probably be much higher

One bit of advice....DO NOT 'co-sign' a note for ANYONE... even a family member. The only reason a lender wants a cosigner is because they are expecting the venture to fail or that the borrower does not have the assets or income to guarantee the loan himself.. I had to learn this the hard way.. When the venture failed..the banker was only too happy to tell me that.. and demand that I pay the loan...grrrrr !!!!!

Last edited by Tortuga; 04-10-2018 at 11:52 AM.
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Old 04-10-2018, 11:49 AM   #3
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It is dangerous to lend a friend money, that is, if you want them to remain your friend.
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Old 04-10-2018, 11:56 AM   #4
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10% is fair to both of you. If he's a dik then make it 15%.

Personally I wouldn't do it with neither a good friend or a family member.
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Old 04-10-2018, 12:35 PM   #5
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"Neither a Borrower or a Lender Be...For loan oft loses both itself and friend, "

William Shakespeare.."Hamlet".......
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Old 04-13-2018, 08:44 AM   #6
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The rate will depend if you are senior on the debt or subordinate and if the loan is offset by assets or cash flow. Going rate for asset backed senior is anywhere from 4% -7%, but I would add additional points for the new business risk. If it is cash flow only, then it is 10% - 15%. Sub debt is even higher. You could also take equity, convertible debt to a preferred equity.
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Old 04-13-2018, 02:47 PM   #7
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A loan to relatives or friends is a "gift" !!!! Been there and lost all. What can you do if they can't repay you! One could lose a relative or a friend, the odd against you.
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Old 04-16-2018, 08:11 AM   #8
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Quote:
Originally Posted by BullyARed View Post
A loan to relatives or friends is a "gift" !!!! Been there and lost all. What can you do if they can't repay you! One could lose a relative or a friend, the odd against you.
It rarely works out well between friends or relatives but you could be the rare exception, however the odds are not in your favor ...

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Old 04-16-2018, 08:18 AM   #9
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I have a 100% success rate of recovering when loaning friends money. 100% of the time I have never seen a dime back.
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Old 04-16-2018, 08:54 AM   #10
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You can loan interest free ( or give) up to $15,000 tax free, per giver, per year.

Over $15K you have to charge and report interest income on form 1098.
IRS minimum ( Applicable Federal Rate) is about 2.3%, the rate is updated monthly.

http://www.irs.gov/pub/irs-drop/rr-18-09.pdf

We loaned our daughter money to buy a little house. Had a lawyer write a contract for monthly payments and used IRS minimum rate for that month.
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