Investing in boss's business

[dzek]

Hi,

I've been working as a security guard at a bar for the past month. I work for a security company that subcontracts to the bar. This company has only been recently established and my boss, who has a small stake in the bar, is still sorting himself out.

My boss said that he's a bit short on cash at the moment while he gets organized and he's made a proposal:

Lend him $10,000 and in 3 months I get $12,000 in return. Bank won't lend to him because there's no collateral. It will be done through his accountant. He's going to email me something soon and it will be some sort of signed agreement. I'm essentially freeing up $10k of the capital he has tied up in the bar.

I've known him for a few months now as we worked for the same security company before we started at the bar. From what I've seen of him and heard about him, he's a decent, honest and somewhat successful guy.

Anything I need to know before going ahead with this?

Thanks

[cynic]

Hi,

I've been working as a security guard at a bar for the past month. I work for a security company that subcontracts to the bar. This company has only been recently established and my boss, who has a small stake in the bar, is still sorting himself out.

My boss said that he's a bit short on cash at the moment while he gets organized and he's made a proposal:

Lend him $10,000 and in 3 months I get $12,000 in return. Bank won't lend to him because there's no collateral. It will be done through his accountant. He's going to email me something soon and it will be some sort of signed agreement. I'm essentially freeing up $10k of the capital he has tied up in the bar.

I've known him for a few months now as we worked for the same security company before we started at the bar. From what I've seen of him and heard about him, he's a decent, honest and somewhat successful guy.

Anything I need to know before going ahead with this?

Thanks

A good friend of mine once advised me to only lend money that I was happy to lose. Based upon my experiences of "trustworthy" friends and relatives to date I consider the advice to have been very appropriate.

Another person advised me that if I ever wanted to end a friendship, then all I needed to do was loan that friend some money. This advice has also proven itself to be correct on more than one occasion.

How important is your $10K to you?

Are you willing to risk the possibility of never seeing it again?

[tech/a]

If a bank won't lend him money nor should you.

If he can't raise $10 k now he won't raise $12 k in a few months

There is always the risk that in a few months time he will hit you up again and as you won't want to lose the $10 k you'll be tempted to go again.

Anyway 10 k in business is bugger all.
If he WAS successful he wouldn't be asking.

Run and get another job.

[CanOz]

Why can't you negotiate a stake in the business in return for the capital?

CanOz

[nulla nulla]

If a bank won't lend him money nor should you.

If he can't raise $10 k now he won't raise $12 k in a few months

There is always the risk that in a few months time he will hit you up again and as you won't want to lose the $10 k you'll be tempted to go again.

Anyway 10 k in business is bugger all.
If he WAS successful he wouldn't be asking.

Run and get another job.

Many years back some statistics were published in respect of startup businesses in Australia. Records showed that 50% failed within 2 years. Of the survivors a further 50% also failed in the following 3 years. A total of 75% of the original startups in a given year failed within 5 years.

The main reasons for the failure rates were lack of sufficient capital and lack of adequate business acumen of the principals behind the business.

If your employer is seeking a loan from you to help stabilise his business, he already meets both criteria for failure: lack of adequate funding and lack of adequate business acumen. If he can't raise $10,000.00 through established sources of funds, it is likely that the potential lenders have reviewed his working model, reviewed his prospects of providing assets as security over any loans and decided not to finance him.

If the professional lenders (experts) have turned him down why would you risk your hard earned savings in what is obviously a high risk proposal (20% interest for a short term loan?). As T/A points out above, if he can't raise $10,000 now how will he raise $12,000 in 2-3 months?

I also would be scouting arround for a job elsewhere, with a more secure employer.

[doctorj]

It's probably not a good idea to lend to your boss. If something goes wrong and he can't pay you back, you're in a weak negotiating position, out of a job and down 10k.

A lack of collateral is one reason a bank won't lend to him. The fact that the company is recently established, has no trading history and it seems like only one customer (and that's related) is more likely the main stumbling block.

If he doesn't need the whole 10k in one hit and if he's looking to free some working capital, he does have options. Banks won't lend without trading history, but if he has some receivables, he could try factoring. It's not cheap, but it will be for a much less than he's offering to pay you.

If a bank won't lend him money nor should you.

It's not relevant to the OP, but given there might be other curious SME owners reading this, I would disagree. There are whole bunch of very good reasons for the OP not to do it, but this isn't one of them. There are multi billion dollar industries built around lending to borrowers that banks can't, don't or won't touch. These lenders are reputable (many are actually owned by banks incidentally), profitable and enable SMEs to grow where they otherwise wouldn't.

Anyway 10 k in business is bugger all.
If he WAS successful he wouldn't be asking.

We all start somewhere...

[Tannin]

Run away.

Run away now.

Think it through: he is asking for 10k. He is going to pay 20% interest over three months (not that you'll get your money back after three months, but let's do the sums) which is 6.7% per month!

Why would he want to do that when he could simply put an extra 10k on his credit card and pay 1.6% per month for the same money?

The only reason he would want to borrow from you at nearly 7% per month is that he can't borrow that same $10k on his credit card at one quarter of the cost. Either the banks won't give him a credit card, or else he has maxed out his limit and they won't give him any more. Either way, he is a disaster. Start looking for a job. Now.

Banks love credit cards. They give credit cards to anyone and they automatically rubber stamp credit limit increases for any card holder smart enough to know which end of the pencil to hold when he is filling out the form. They say that they take care and lend prudently, but in reality, banks just shovel out the credit as fast as possible 'cause it doesn't matter if you go broke and can't pay them back, they make so much on the card (20% pa interest plus 1.5% transaction fee from the shops) that they can quite happily see 1 in 10 go bankrupt and still be making lots.

So when your credit is so bad that a bank won't give you a credit card .....

[Des P]

A good friend of mine once advised me to only lend money that I was happy to lose. Based upon my experiences of "trustworthy" friends and relatives to date I consider the advice to have been very appropriate.

Another person advised me that if I ever wanted to end a friendship, then all I needed to do was loan that friend some money. This advice has also proven itself to be correct on more than one occasion.

How important is your $10K to you?

Are you willing to risk the possibility of never seeing it again?

I have to totally agree have been burnt several times myself and lost a lot of so called friends
Now i just tell people i haven't got the money
I can feed you and give you a bed to sleep in

Best follow the advice of most poster,s look for another Job
Cheers
Des

[tech/a]

Firsty
A Bank is likely to look at 3 criteria.
(1) .Credit rating if he has a bad track record then they won't lend even if it's a few $ s of un paid debt.
(2) Collateral ----- for 10k they would generally do un secured or a line of credit.
(3) Servicability--- over 10 yrs its $20/ week.

If he's looked at a bank for $ 10 k and can't get it without a plausible explanation ----- run Forest!

We all have to start somewhere

Part ownership of a Bar and a security company doesn't sound much like start out.
Smells of over commitment---- desperation.

But hey -----

[dzek]

Thanks for the responses guys. How should I approach him with my concerns? What questions should I ask without informing him too much and possibly losing out on a great return if things go well?

[tech/a]

Thanks for the responses guys. How should I approach him with my concerns? What questions should I ask without informing him too much and possibly losing out on a great return if things go well?

Risk $10k for possible return of $2k
Ey ey ey ey ey.

[Boggo]

Thanks for the responses guys. How should I approach him with my concerns? What questions should I ask without informing him too much and possibly losing out on a great return if things go well?

Just a straight out no, tell him thanks for the offer and leave it at that.
As for the "losing out on a great return if things go well", that gambling mentality will get you in strife everytime.

[McLovin]

The cheapest Hyundai costs about $15k. If your boss is successful, as you state, it's hard to believe he doesn't have $10k in assets that he can use as collateral. The guy has a stake in bar but doesn't have $10k in assets that he can use as security. Even worse he is asking his employees to lend him money. Something doesn't quite fit.

[Klogg]

Thanks for the responses guys. How should I approach him with my concerns? What questions should I ask without informing him too much and possibly losing out on a great return if things go well?

To be honest, it's not worth the hassle IMO. I can't see how it can end well... the possibilities are:

- Your employer pays you back, but you've altered the relationship between you and your employer (it can get weird)
- Your employer goes broke and you lose your job (there goes 10k and your income!)
- Your employer delays paying you (which will end in a lot of stress on your part)

Either scenario doesn't have a happy ending.

If I were you, I'd tell him an unexpected personal expense of some sort came up (make it realistic) and that you can't lend him the $10k. That way he doesn't know you're holding out on him and you still have your money...

[Julia]

Just a straight out no, tell him thanks for the offer and leave it at that.
As for the "losing out on a great return if things go well", that gambling mentality will get you in strife everytime.

The cheapest Hyundai costs about $15k. If your boss is successful, as you state, it's hard to believe he doesn't have $10k in assets that he can use as collateral. The guy has a stake in bar but doesn't have $10k in assets that he can use as security. Even worse he is asking his employees to lend him money. Something doesn't quite fit.

+1. I'm pretty surprised that anyone would ask an employee.
Much better ways to employ your $10K.

[Smurf1976]

If you were lending money to someone like BHP or AGL then at least you can be fairly certain that they can pay you back. The only issue then is with any contractual disputes etc but there would be hundreds of suppliers to these two (and other big companies) who are happy to supply the goods or services first and be paid later on the basis that it's a fairly low risk situation. It's not totally impossible they could go broke, but I think most would agree that it's unlikely that BHP etc will be going out of business anytime soon.

Lending money to smaller businesses is an entirely different story. You have a much smaller asset base and generally a lot less diversification also. We're talking probably one manager and in most cases a small number of significant physical assets, business premises etc. It's not hard to be wiped out if something goes wrong.

Lending money to anything which even remotely resembles a bar, or even worse a nightclub, brings an entirely new dimension to the concept. I honestly can't think of a single type of business that is more likely to go bust or otherwise end up with financial funnies than a nightclub. City bars aren't far behind (country pubs are a bit more stable).

These places go broke for the flimsiest of reasons - fashion. Someone opens a new club and all of a sudden the former #1 nightspot is dead with practically nobody there. Then it goes broke. That happens all the time in any large city.

[ROE]

if you want to refuse the loan a good trick is refer to higher authority tatics.

Tell him your wife/partner/girlfriend dont want to lend, it is a buffer they build for emergency and they dont want to do it, you convince them, but they say no....so you are not saying no a higher authority does.

You see it a lot in sales tatics, you ask for a discount, they say I got to ask my boss - all bull**** just a tatic to get more out of you....But if someone who know these negotiation tatics there are counter tatics for it..

Just hope your boss havent been trained by Roger Dawson

[gordon2007]

Mate, forget the bullcrap stories of trying to find a graceful exit. Just be straight and honest. Tell him you wish him the best of luck but that you're not comfortable providing this type of a loan. Explain you're happy to continue working for him and you hope he proves you wrong.

With that said, the fact that you're a security guard, and I mean no disrespect, tells me that $10K is a very lot of money to you. For others it's a drop in a bucket. I would not invest such a 'large amount' of money for a very minimal return.

In the meantime, definitely start looking for a new job.

[ROE]

Mate, forget the bullcrap stories of trying to find a graceful exit. Just be straight and honest. Tell him you wish him the best of luck but that you're not comfortable providing this type of a loan. Explain you're happy to continue working for him and you hope he proves you wrong.

With that said, the fact that you're a security guard, and I mean no disrespect, tells me that $10K is a very lot of money to you. For others it's a drop in a bucket. I would not invest such a 'large amount' of money for a very minimal return.

In the meantime, definitely start looking for a new job.

It is not always wise to be brutally honest especially when you are in a weak negotiating position..

it is better to use tactics and negotiation tactics that deflect the heat away from you.

[Des P]

Thanks for the responses guys. How should I approach him with my concerns? What questions should I ask without informing him too much and possibly losing out on a great return if things go well?

From this post you are still considering this
Consider these scenario,s
1. when the loan is due to be paid you will get the excuse next month
2.This person will say i will put the money in your acc soon (never happen,s)
3.Can you handle this person living it up on your money in front of your eyes(it happen,s all to frequently)
4.If this employer thinks his business is a good investment Then he can sell his house(if he has one) sell the car (if he has one) sell the fridge ,Rolex e.t.c
5.Last but not least,How are your emotion,s,will you feel guilty!!!! because you have to ask for you own hard earned money.This is where the falling out on friendship,s or in your case your employer will! happen,and in my situation and many others i know some if not all your money is lost.

Please think how hard you worked and how long it took you to save that money
Is it worth the 50/50 chance of losing it
Maybe go to the casino and bet on red or black

I hope my advice is not to harsh
Cheers
Des