Welcome back to the financial planning basics series. This is a series that I have created within the Solopreneur Money podcast to help you master the basics of finance so that you can live the life of your dreams.
If you have reached a certain level of financial success, you may have been asked this question: can you cosign a loan for a family or friend? Would you know what to do if this question comes up? Press play if you are interested in hearing my client’s story and learning what questions to ask if someone you care about asks for your financial help.
You will want to hear this episode if you are interested in…
- Statistics on small business success [3:02]
- Alternatives to cosigning to help a friend get started [5:23]
- Questions to ask [7:36]
Should you cosign on a friend’s business loan?
You know how hard it is to start a successful business because you’ve already put in the work and done it. Now that you have achieved a level of success, those around you want some of what you have. Many of us have been approached by friends and family asking for help to start their own business.
Even though you know how hard you have to work to make your business a success, it may help you to consider some statistics before you help someone else get started. 20% of new businesses don’t make it past the first year. 30% don’t make it past the second and 50% won’t make it 5 years down the road. 70% of all small businesses don’t last for more than 10 years. The numbers don’t lie. Cosigning on a business loan is a bad idea.
What are some alternatives that you can use to help?
If you have realized that cosigning on a friend’s business loan is a bad idea but you still want to help, there are ways to help them get started on their business without putting your name on the line. You could loan them the money outright by using cash that you have on hand. You can lend them money by using the home equity that you have. Or you could help them come up with other ways to get the money they need. I still don’t recommend any of these alternatives, but they are slightly better than cosigning on a business loan.
Questions to ask
If you are still considering cosigning for their business loan, you need to go into it with your eyes wide open. You can do this by asking plenty of questions. How much will you be on the line for? What would happen if you get stuck with the loan? Do you really want this business if you end up getting stuck with it? Would you want collateral from this person? Before you sign any papers, make sure that you consult with an attorney.
Schedule an introductory meeting
If you need help answering any of these questions go to my website and hit start here to schedule an introductory call. I want to make sure that you are on track to achieve your goals. It is my job to ensure that my clients are prepared for the unexpected and to help them reduce unnecessary risk. I help my clients achieve their financial goals so that they can live the life they deserve.
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