# Investing in boss's business



## dzek (1 September 2012)

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


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## cynic (1 September 2012)

dzek said:


> 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.
> 
> ...




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?


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## tech/a (1 September 2012)

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.


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## CanOz (1 September 2012)

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

CanOz


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## nulla nulla (1 September 2012)

tech/a said:


> 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
> 
> ...




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.


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## doctorj (1 September 2012)

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. 



tech/a said:


> 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. 



tech/a said:


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



We all start somewhere...


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## Tannin (1 September 2012)

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 ....._


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## Des P (1 September 2012)

cynic said:


> 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.
> 
> ...




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


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## tech/a (1 September 2012)

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 -----


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## dzek (1 September 2012)

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?


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## tech/a (1 September 2012)

dzek said:


> 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.


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## Boggo (1 September 2012)

dzek said:


> 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.


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## McLovin (1 September 2012)

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.


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## Klogg (1 September 2012)

dzek said:


> 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...


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## Julia (1 September 2012)

Boggo said:


> 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 said:


> 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.


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## Smurf1976 (1 September 2012)

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.


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## ROE (1 September 2012)

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


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## gordon2007 (1 September 2012)

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.


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## ROE (2 September 2012)

gordon2007 said:


> 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.


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## Des P (2 September 2012)

dzek said:


> 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


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## Julia (2 September 2012)

Des P said:


> I hope my advice is not to harsh
> Cheers
> Des



It's not.  It's dead set right.


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## CanOz (2 September 2012)

ROE said:


> 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.




I agree totally. This knucklehead is your boss, so tell him the wife or whatever put the money in a long term deposit, bought an LV bag, or something....


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## Des P (2 September 2012)

Julia said:


> It's not.  It's dead set right.




Thanks Julia for your comment
I sometimes wonder if my post's make sense
I just feel with all the posts advising against
and from personal experiences
This young fella(if he is young)could be making a big mistake 
So if the Boss is Trustworthy there will be a 20% profit
If he is not what is the profit?????????? 
Cheers
Des


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## dzek (2 September 2012)

Thanks guys but I already gave him the loan before my OP. Just wanted to check with you guys to see if it was a good idea. Obviously should have checked before giving the loan, but I have a signed agreement from him and we have quite a bit of work coming up (new contracts) so should be ok, but reading all your responses I'm a bit worried now. I'll let you know how it goes. He's actually paying me back in monthly installments so I'll have an update in a month. Cheers


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## Boggo (2 September 2012)

dzek said:


> Anything I need to know before going ahead with this?
> Thanks






dzek said:


> Thanks guys but I already gave him the loan before my OP. Just wanted to check with you guys to see if it was a good idea.




I would suggest that you learn to tell the truth in future, it may even get you out of being a security guard and into a position of trust and respect !

People on here are making genuine responses to your initial post and trying to be helpful, you and your boss are obviously well suited and both of you seem to have the ability to mislead.

Good Luck 

_Mods:- this whole thread should be removed imo._


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## Des P (2 September 2012)

Boggo said:


> I would suggest that you learn to tell the truth in future, it may even get you out of being a security guard and into a position of trust and respect !
> 
> People on here are making genuine responses to your initial post and trying to be helpful, you and your boss are obviously well suited and both of you seem to have the ability to mislead.
> 
> Good Luck




Good post Boggo it is disappointing that the Young fella has already made his dision Before advise was given
And a lot of posters spent the time to advise
hope all goes well for him??????????
Lets see if he post,s in 1 months time
Cheers
Des


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## Tannin (3 September 2012)

Hey, lighten up. $10k is cheap for a good education.


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## cynic (3 September 2012)

dzek said:


> Thanks guys but I already gave him the loan before my OP. Just wanted to check with you guys to see if it was a good idea. Obviously should have checked before giving the loan, but I have a signed agreement from him and we have quite a bit of work coming up (new contracts) so should be ok, but reading all your responses I'm a bit worried now. I'll let you know how it goes. He's actually paying me back in monthly installments so I'll have an update in a month. Cheers




dzek, you've only known this person for a very short time!!!

Did he perchance volunteer to show you a copy of his most recent report/s from the relevant credit reporting agancy/ies? 
Even if he did, there may be other trusting people like yourself lending him money in recent times.
He may have a lot of work coming in, however, this will be small comfort to you as he's probably already overcommitted elsewhere. The fact that the banks can't offer him additional credit/overdraft facilities is a strong indication that this is so!

Furthermore, you've used his accountant to draft the written agreement (most unwise!)
Did you verify the professional standing of said accountant? Do you know the meaning of the phrase "conflict of interest" ?

 Who were the witnesses to the signing of this document? What clauses were included? Will this document have legal standing in the event of default (i.e. your boss doesn't pay and you have to pursue him for recovery of the debt)?

At the very least, one would be well advised to involve their own solicitor/lawyer in the preparation and signing of such documents!!!

If you lose your job you'll probably need your boss to give you a good reference for future employment. Is he likely to give you a good wrap when you're pursuing him for the money that he owes you? 

Do you realise that In the event of unemployment, Centrelink may (depending upon interpretation) treat this debt as a liquid asset and make you wait longer before they start paying your fortnightly entitlements?


@Boggo, there has been a lot of great advice given in this thread, and I believe it may prove to be valuable to future subscribers to this forum as dzek's situation is far from unique. I for one, hope that this thread remains, let's overlook the deceitful bathwater for the sake of the babies (insightful responses). 

@Tannin, spot on! I believe this is one of those occasions where life experience is likely to prove to be the most effective teacher! Much as I wouldn't wish bad debts upon anyone, some people will only discover the value of prudence after completing a costly semester in the "school of hard knocks". It may seem harsh of me saying this, but, based on dzek's posts, I believe that if the boss acts with integrity and willingly honours the debt, he will, in effect, have denied dzek a much needed learning experience.


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## Junior (3 September 2012)

Don't close the thread, I'm interested to hear the outcome.  Could make a good story.

Keep the updates coming through.


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## waimate01 (3 September 2012)

Tannin said:


> Hey, lighten up. $10k is cheap for a good education.




+1

One doesn't want to be too negative about this, particularly in light of the fact dzek has already made the loan. But its hard to see this working out well.

Dzek, ask yourself this: are you getting paid for the work you're doing for him? Presumably yes. Where is that money coming from? From you! Do you see what's wrong with this picture!? Likewise, the monthly 'installments' are also coming from you.

But you're committed now, so the question is where to go from here.

First, be very much on the lookout for this guy asking for more money. This request is likely to be accompanied by things such as :-
- If you don't lend me more, you'll lose your $10k. 
- You need to lend me another $5 to save your $10
- I'll double the interest if you lend me more
- I'll give you a percentage of the business
- I can't pay you your wages unless you lend me more
- Can you borrow it from your parents then lend it to me
- If you stop working for me, I won't be able to pay you back

Any of these things should cause you to chalk your $10k up to a leaning experience and run like hell. 

Another thing to watch out for is any late payroll or bounced cheques. Again, run like hell.

You don't need to call him names, you just need to tell him you don't have any more money to lend, nor can you get any, nor can you afford to work without getting paid in a timely manner.

If it does go pear-shaped, then maybe you can put a debt-collector onto him. If not that, at least turn up to the local courthouse and get a winding-up order on his business. It costs you nothing, it's unlikely to yield any result, but it's good sport.

Also, if the paperwork is up to scratch, you might be able to claim the $10k as a capital loss and knock it off any capital gains you have or will have (but get proper advice on this). So at least that's something.

But in the meantime don't go around glowering at this guy and calling him a bastard, otherwise it'll all become self-fulfilling. 

Expect the best while preparing for the worst. With any luck, he'll turn the corner and you'll make your 20% and breathe a sigh of relief. 

Just don't do it again


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## Sdajii (3 September 2012)

This has been a really interesting thread. Lots of people have very much the same advice and experience (mine matches too, so I won't add more of exactly the same).

I would love to see the paperwork. You'd laugh (if it wasn't you who signed it!) if there was a clause along the lines of 'this money is to be used in the business and if it screws up that's too bad for both'. It may alternatively/also have stupid clauses along the lines of 'if the money can't be repayed in time a delay can be arranged by increasing the interest...' or some such nonsense. The fact that this guy's own accountant drew up the contract should be sounding the alarms and flashing the red warning lights.

Assuming the boss isn't absolutely 100% deceitful (perhaps likely) I do think this boss is figuring that the business needs some capital and it's a risky proposition. Invest the money, if it goes well it'll be wonderful, if it goes bad all the money is lost. In this situation he is simply risking someone else's money rather than his own. It's a bit like going to the casino, betting someone else's money on red, if you lose you only lose their money (none of your own) and if you win you still take 80% of the winnings. If I could game like that I'd spend a couple of years at the casino then retire a billionaire.



Tannin said:


> Hey, lighten up. $10k is cheap for a good education.




I think that's a great point. Some of my biggest life lessons have involved losing thousands or tens of thousands of dollars. Sometimes, especially when you're young, that's the only way you're capable of learning. If you can look back at the situation in a few years and say that you've benefited more than $10k from what you learned, it'll be worth it even if you lose your money. It's possible that this person would actually be worse off if he ended up getting his $12k, a bit like lots of people would be worse off if red came up on their first spin of the roulette wheel - to a lot of people this apparently proves that a bad risk is a good investment, so they become programmed to take that risk again.

I'd say I feel bad, but I can't really say I'm much of a fan of bouncers 

:fan:


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## cynic (9 October 2012)

dzek said:


> Thanks guys but I already gave him the loan before my OP. Just wanted to check with you guys to see if it was a good idea. Obviously should have checked before giving the loan, but I have a signed agreement from him and we have quite a bit of work coming up (new contracts) so should be ok, but reading all your responses I'm a bit worried now. I'll let you know how it goes. He's actually paying me back in monthly installments so I'll have an update in a month. Cheers




I hope that the bluntness of my earlier posts to this thread haven't dissuaded you from giving the promised update. I am sure that many ASF'ers will be interested to read the next exciting instalment of your entrepreneurial adventures.

The absence of further advice from yourself is likely to result in many forming the opinion that things didn't quite go according to plan.

I do hope that you'll let us know either way. Your willingness to share these episodes of your new found career (as a financier)  may serve to enlighten others. Your candidness could potentially save future visitors to this thread from a similarly draining experience.


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## stevier95 (3 November 2012)

Any news?


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