tupacboy

Hi Guys,

I need to loan my sister about 15000 for her business adventure.

But I still want a loan agreement. I do not want a lawyer involved.

Does anyone have a agreement I can use that will hold in court (I hope it never comes to this) in cali?

Thanks.

Maarchk

Don't do it. Seriously... if she has a good plan, a bank will back her. If she doesn't have a good plan, you are in for a fight when it goes bad. The only way i lend someone money is if i can never see it again and still be their friend. I lent my girlfriend 1000 dollars, and she has never paid it back. She then became my ex and i just let it go. We are still friends but had i questioned her on the money, we would not even be friends i imagine.
Seriously.. just dont do it.

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tupacboy

Yeah... I agree... I personally don't lend money to friends... but my sister is financially stable. Just needs this last bit to make it happen.

So here is waht i got... lmk know what u guys think...

1. Parties: The undersigned is jo, the Borrower, and the Lender is Charles

2. Date of Agreement: October 2007.

3. Promise to Pay: Within 10 business days upon the completion of sale or closure of blah balh blah under the LLC name (to be entered). Borrower promises to pay to Lender $15,000, interest and other charges stated below.

4. Responsibility: Borrower signed below understands that they responsible and severally liable for paying back the full amount.

5. Breakdown of Loan: Borrower will pay:
Amount of Loan: $ 15,000


ANNUAL PERCENTAGE RATE 8%

6. Repayment: Borrower will repay in the following manner: Borrower will repay the amount of this note in full of $15000. Within 10 business days upon the completion of sale of Mama’s and Papa’s pizza under the LLC name (to be entered).

7. Prepayment: Borrower has the right to prepay the whole outstanding amount at any time.

8. Default: If for any reason Borrower fails to make any payment on time, Borrower shall be in default. The Lender can then demand immediate payment of the entire remaining unpaid balance of this loan, without giving anyone further notice. If Borrower has not paid the full amount of the loan when the final payment is due, the Lender will charge Borrower interest on the unpaid balance at 8 percent ( %) per year.

9. Right of Offset: If this loan becomes past due, the Lender will have the right to pay this loan from any deposit or security Borrower has with this lender without notice to him/her.
If the Lender gives Borrower an extension of time to pay this loan, he/she still must repay the entire loan.

10. Collection fees: If this note is placed with an attorney for collection, then Borrower agrees to pay an attorney's fee for the Lender. This fee will be added to the unpaid balance of the loan.


Agreed To:


______________________________
Lender : Charles

______________________________
Borrower : jo

Daedalus

Maarchk is right. If the plan is solid money should be the easiest thing to come by.

When you say "hold up in court" you're implying that you would be willing to take a potential future issue to litigation. Are you really willing to do that with your sister? Consider the costs of courts and lawyers, which would eat up a moderate chunk of $15k in a hurry, if not all of it. If not, then the loan agreement is only a reminder to both of you of what you expect from each other, and you can dispense with the legalese.

If you really believe in your sister then I would suggest you buy equity in the business, with some kind of structured profit sharing at a future date, maybe based on certain business milestones, including growth and profitability. It shows a lot more faith than writing up a loan agreement, and it has a much higher potential payoff for you. 8% is diddly squat for a good business.

tupacboy

doesn't number 10 cover the lawyer thing?

I appreciate you guys looking out for me.

But I have made up my mind to lend my sister the money. So please advise the contract that I wrote up if you can.

Thanks,

mcs328

I just read something about this in consumerist.com or lifehacker.com where there's a website that will track your agreements between friends or family members without the use of lawyers. I'm sure I've read it in the past 2 weeks. If you're still interested I'll see what I can dig up but this website I think is exactly what you're looking for.

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catch22

In CA, 10% is standard for interest on monies owed. For example, you are paying off a court judgment, the past owed amount is subject to a 10% interest rate. I can send you a blanket loan agreement you can modified, just PM you email. My only real suggestions are you have her personally secure it(rather than her LLC) and I would highly recommend following Daedalus's advice, have it setup as you are buying equity in her business, payment plan structured as monthly dividend payments. She can buy you out at a future date. The only downside is that if the business goes belly-up before you are paid back, then you are out.

InfiniteNothing

I'm going to push you the other direction. Just give her the money tell her she can pay it back whenever. Don't worry about the payback.

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gear02

With startups, the first thing to do when you raise money is to tap angel investors, which means friends, family, and business contacts, before you hit VC and banks. This is what he's doing.

tupacboy

gear02

I hope you're not cheering for my grammar...I just reread it and it sucks.

By the way, I just realized that if you want to do this agreement, you should also spell out what equity you'll get in her startup. Unless you're just giving her a loan with interest payments, you two should have an agreement concerning your investment and the equity you get back.

tupacboy

I'm Cheering the fact that you understand.

I think i'm going to ask for 10%... =)

Daedalus

I'm not a lawyer by any means, so I won't comment much on the agreement except to say it seems a bit heavy on penalties. You need to make sure none of the covenants conflict with state usury statutes. Any illegal agreement is void by definition.

I'm having a hard time resolving the motivations behind your investment. If you're seeing this from purely an investment standpoint, even a 10% return is not worth the risk of investing in a start-up. If you believe the Ibbotson study, a diversified [less risk] basket of stocks of public and established [less risk] companies is expected to return ~12%/year over the long run. Seed-stage venture capitalists typically seek 60-80% ownership in new businesses to compensate them for the risks they take.

If you're trying to help a loved one in getting their dream off the ground, the agreement seems a little long on protecting your interests and short on love.

What are your motivations behind the loan?

brainsmile

if you need a form email me

brainsmile@gmail.com

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