[Closed] Business-to-business loan, advice?

is there anything else I should be aware of from an accounting perspective?

Not getting your money back?

Seriously, that would be my concern. You can have all the agreements in the world but what are you going to do if he doesn't/ can't pay?

Would you take him to court and worst case force him to wind his business up?

Personally I'd leave such things to the banks and finance companies.

As above, just bear in mind you can't legally enforce repayment, an agreement will only be useful to avoid arguments about when repayments should be made etc. If they choose not to pay, it only your friendship they're risking.

You could lend him the money through something like Funding Circle and get the legal protection through that.

Can you not buy the van in your company name and "rent" it to him ? That way it would belong to you.
I am assuming they are not able to get credit themselves ?

, just bear in mind you can't legally enforce repayment,

Not sure I agree.

A properly documented loan should be enforceable against the borrower, have default terms, interest and all and be able to have either a county court claim or statutory demand issued in respect of it.

The big questions to my mind are:

Why is he not borrowing this money elsewhere on commercial terms (e.g bank loan, credit card etc.)?

Who are you lending to? The friend personally, a partnership or an incorporated business? This affects who is liable to repay you and who you can pursue and how much risk you are taking. What is the financial health of the borrower like.

Is it an amount of money you can afford to lose?

Is it a friendship you are prepared to lose?

Is it an amount of money worth getting a proper legal agreement drawn up for? If so why is he not borrowing that from a bank etc.

If your business is incorporated then you need to consider your director's duties too.

Edit and I don't know if there are any consumer credit implications here either.

You need to judge for yourself the risk of not getting your money back. Only lend it if you're happy with that risk.

Write a simple 1 page loan agreement for you both to sign.

Agree repayment terms and make sure he sets up a standing order.
Make sure it's repaid in a sensible timeframe (1 or 2 years max)
Secure the loan against the van, so you at least get that if it really goes tits up.

Most businesses require a bit of good will and support from others to get off the ground. For this reason we've lent money to a few friends to give them a leg up, and (touch wood) have never had a problem.

That said, there are friends/businesses out there I would most definitely not lend to! I would also not lend very large sums of money.

Contracts not written in blood aren't worth the paper they're written on. Unless you're willing to end up in court. And then pay with more blood.

If he's a good mate, just go for it on a handshake, a clear understanding and a bit of eye contact.

Gut feeling ? I wouldn't bother. As already said , how are you getting the money back and if it's a repayment monthly why can he not get the money through a bank ?

Presuming he can’t get credit elsewhere ?

He’s going to be needing to earn a fair whack to pay back the cost of a van within a year.

And if he was genuinely earning enough through his business to pay it back within a year, he wouldn’t have any probs getting a business loan from the bank.

Thanks for all the advice, I was more concerned about the accounting side of it to make sure I’m not looking like a wrong un in HMRC’s eyes for example.

Believe me, I know about friends screwing me in business (and yet I still trust a few people).

Much appreciated, thanks for all comments so far.

Pete from earth, thanks - I shall do precisely this.

Accounting-wise it's really simple especially if you have accountancy software that syncs to your bank.

In Xero I've got an account called 'other debtors' where I put the initial payment to them, then their repayments go against the same account and reduce the balance as the loan is paid off.

There's no reason HMRC would care about the loan. Any money owed to you is considered an asset so still counts towards your net worth. Just make sure your accountant knows about it!

If you are charging interest then that would be income so will increase your tax liability. And that would probably require a bit more work in your accounts.

Perfect, thanks very much. I'll be able to do the same in FreeAgent. Perfect, thanks. I was thinking I would have to charge interest to make it look better - i.e. doing something to make money, which is what a business should do. However, I shall now charge him just the amount he owes for ease of use and because it's what I think is right anyhow.

Thanks again, much appreciated.