This is one of the videos ĠEMMA produced with the Central Bank of Malta in our money matters and the family.
Let me introduce the ĠEMMA family. I am Tony. I am Maria’s husband. I work as a manager in a large business in the services industry. My wife, Maria, is 40 years old and works in her father’s family business. We have two children: Matthias, our son who is 11 years old and is now in secondary school, and Angele, our daughter, who is 17 years old and is finishing upper secondary school this scholastic year.
Andrew, a very close friend of mine, recently approached me to see whether I could act as a co-borrower or act as a guarantor on a loan he is requesting to open up a new business, and in return, he would provide me with a share in his business. Andrew and I are old friends – we go back to primary school. I thought long and hard whether I should help him out and I also discussed it at length with Maria. We spoke to another old friend of ours who is a banker on what risks we faced if I co-borrowed or acted as a guarantor for Andrew’s loan.
My banker friend highlighted that I should give serious thought to the following before committing myself as:
- Acting as a co-borrower means that I am jointly and individually liable for the debt. If Andrew cannot pay his share of the loan, I will then have to repay the total amount outstanding myself;
- Acting as a guarantor also means that I will make good if Andrew defaults. When you sign as a guarantor, you are legally responsible for paying back the entire loan if the other person cannot or will not make the repayments. You will also have to pay any fees, charges and interest. Additionally, as a guarantor, you don’t have the right to own the property or items bought with the loan;
- Presenting security for Andrew’s loan means that I cannot use the asset I placed as security should i need to take out a loan, apart from the fact that I will lose the security placed had Andrew default.
As much as I like Andrew, having listened to what my friend the banker said and following further discussion with Maria, I decided to tell Andrew that I would not take up his offer and would not invest in his business. Furthermore, I am aware that business and friendship should not go together, as I have seen some good friendships bitterly fall apart in this way. I explained all this to Andrew, saying that I value his friendship too much rather than risking a breakdown in our friendship because of business. I told him I would help him get his business started so long as t it does not involve money.
Let us know your thoughts. We look forward to hearing from you. We at ĠEMMA encourage you to share this link or the Video or the calculator or all of them with your friends or publicly on Facebook.