Been invited to invest in friends business

[feelsobadfeltsogood]

Hey Mumsnetters

My friend has got his own business it's doing ok but he's asked me to invest to buy some more equipment etc....

It turned over £55k last year and he's looking for a £30k investment

What kind of return would that give me? He said it'll be worth my while as interest rates are low bank interest in nothing these days but o have no experience in this

Just to set the scene work I'm employed but have 3 houses I rent out but 2 of these have outstanding mortgages on them 1 I can remortgage

I want to help him but I'm really not sure how this arrangement would work

Only do it if you are gifting it to him with no expectation of getting anything back. Because that is what will happen.

He has run out of money and is desperately trying to get some from somewhere. If banks won't loan him after doing their risk assessment, why would you?

No. Far too risky. He should get a bank loan if interest rates are so low.

It's a no from me too.
Don't be fooled about current low interest rates.
They'll probably go up over the next five years. Many of us remember paying 15% on our mortgages, I don't know what loans were then, but obviously would have been very high interest as well.
I'm amazed that he's only mentioning turnover- sorry to ask, but is he taking you for a fool?

Not with a shitty stick. The profit could be £0 on the turnover, seems odd to ask a friend. If business is going well the bank would lend via a business loan.

No way. He can get a bank loan, you'll end up loosing your money or it taking a decade to be repaid back.

You seem really naive (sorry not being critical but you shouldn't invest in this unless you are savvy about potential loss and returns and the business). You should be asking what profit he made on the 55k turnover, what time period do you expect the return over, what's the business plan. Unless you can basically give him £30k and don't mind doing so then no way would I "invest". You could lose everything. I agree savings rates aren't high, but why not put it in a stocks and shares ISA for example?

Do. Not. Do. This. Unless you can afford to throw 30k out the window, without a care in the word, don't even consider it. The fact you have no idea how this works is another reason to firmly decline. Your "friend" sounds dodgy.

I'm hearing this is a bad idea!!

I'll say no I think 🤔

Do not mix business and friendships.

And never make an investment on the basis of turnover - it tells you nothing at all.

Don’t. Even. Consider. This!!!!

How long would it take to return your initial investment? If they paid 5% per year, plus £15k, then you would get your 30k back after 2 years and have some return on the money.

You will want to look at the business books and business plan very carefully. What is the profit, what is likely to be profit once this equipment is in use. If it all goes wrong, then what would that equipment be worth at sale?

You are happy to take risks as you rent out houses. With those you have no guarantee that they will be always rented, you have unexpected costs, you have a mortgage on them so you have to make payments regardless of if you have a tenant. Look at the risk involved, can you afford to take the gamble. Is there track history in this business?

Very very very VERY bad idea. Don't do it.

Turnover is vanity - profit is sanity

An old quote but still holds true.

He'll have to go to a bank or find a business grant they're available

@feelsobadfeltsogood

I'm hearing this is a bad idea!!

I'll say no I think 🤔

Well, I'm sure you have a fair bit of refurbishing to do which means your capital will be tied up for the foreseeable 😁👍

The only way I would do it would be if he is a home owner and do it as a loan secured against his house if such a thing is even possible.

Even if you gave it in return for a share of the business, a percentage of fuck all is still fuck all.

@RG2468

Erm no chance what actual profit did he make? Put it this way I turned over £230k in my first year of business and prob made £200k in profit I’m not seeking any investors

What is your business to make that amount of profit in the first year? Amazing (and well done)!

Generally i would say no but if you still want to you need to see his accounts and a business plan. Would you be owning part of a limited company?

@IncompleteSenten

You would be very foolish to do this.

There's a reason he's asking you rather than proper investors or approaching a bank.

Worst case scenario you lose £30,000.

Are you ok with that?

This exactly.

Also, have you read The Salt Path??

Turnover means nothing. It's profit that counts. Do you ever watch Dragons' Den?