With financial institutions tightening their lending criteria, we have had an increase in the number of enquiries from people thinking about investing with friends, family or neighbours. In most cases the investment returns offered are higher than you would usually expect and in many cases you are the lender of last resort which should ring alarm bells in itself.
As a starting point it is worth remembering that if a bank won’t lend someone money and they have an established process with a strong track record of assessing the good, the bad and the ugly, why would you do it ? I am amazed though at the people I have met over the last 15 years that have invested money with a friend, relative or associate on the basis of the “next big thing”.
Investing is a difficult enough process without adding personal emotion and relationships into the equation.
If you still wish to go down this path, here are a few tips to avoid a breakdown in a friendship,
- Everything you do should be treated as an investment decision and you should both have an aligned horizon of investment.
- All discussions should be documented and appropriate legal agreements drafted and signed by all parties to avoid confusion at a later date.
- Be very wary about signing guarantees, requests for confidentiality and situations where people need money urgently .
- Ensure that you have an exit strategy established
- Separate the friendship from the investment decision
- Get independent professional advice, and although it may be costly this can save you significant grief at a later stage.
We wouldn’t recommend investing with friends irrespective of the situation. Goodluck.
If you have any concerns about your financial affairs please don’t hesitate to contact us at Main Street Financial Solutions on 03 61730070 or via email email@example.com