Before thinking about going to the banks for a loan, why not consider this option?
By Craig Falck of Africa Report
Photograph: © Yuri Arcurs | Dreamstime.com
When it comes to a helping hand, you’d expect your business partner to be the first one there. After all, you’re sharing a business and if one partner struggles, the results could be devastating to the enterprise. It’s usually in their best interests that you are financially secure. Likewise, the same should be expected of you if the tables were turned.
The important thing to remember when getting a loan from your business partner or considering asking for one is that they’re not a bank – their resources are limited, so if you’re in a lot of trouble, they might not be able to help you. If, however, you’re not asking for a large sum of money to borrow and they have a surplus of cash, it would be in both your interests to conclude a loan agreement. This agreement could be quite flexible and be beneficial to both of you.
While banks don’t offer high interest rates on healthy account balances, they’re quick to implement high interest charges on credit balances. Propose to your partner that you pay them more than they would receive from the bank on the amount but also that you’d be paying less than the bank would charge you. This way, they’re making more money than they would have and you’re cutting your costs. Just like a normal loan agreement with the bank, you must draw up a contract with various clauses and stipulations regarding the amount – when and how it will be paid over, when and how the installments will be repaid, and so forth. While they are your business partner, it’s still a business transaction and it’s a good idea to get everything in writing, just in case things don’t go as planned.
Obviously being a good friend has nothing to do with your partner giving you a loan. They need to look at this as a business transaction – you must provide them with a plan on how you’ll get the money to repay them and what you want the money for. If you’re planning on using it for something silly and frivolous, they’ll probably just say no. It makes sense, though – in the current economic slowdown, money is harder to make than give away. You also need to make sure that you’ll be able to pay them back. If not, you could find yourself having to forfeit a portion of your share in the partnership to cover the amount, perhaps even giving your partner too much control of the business… Caution, then, is a necessary approach in a cutthroat business environment.
Getting a loan from your business partner makes more sense than going to the bank. They can make more money and you can save on costs, but you still need to get all your ducks in a row. The last thing you want to do is cause friction between you and the person you’re in business with.
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