Acting as a guarantor for finance for an employee

[Andre78]

Hello all. Just picking your brains if you don't mind. I had an idea...

So in summary I am lending an employee 1k this month to put towards a car. He's gonna to pay it back over 10 months out of his salary. No problems.

However, how would it work if I acted as a guarantor on finance for something better? I'm doing OK, I could shoulder the burden if it came to it but where would I stand with regard to making sure I ultimately got my money back? Or could I in worse case scenario take ownership for the vehicle.

Bottom line how do I cover my ass in this?

Thanks

 

[MBE2017]

Talk to a solicitor and make a formal agreement, but bottom line is there are no guarantees in life, if it was that easy the loan companies would have no debtors.

 

[Mr D]

Lending is one thing. Acting as guarantor? That would be taking your relationship to a different level.
Sure you want to go there? One can be seen as salary advance, common enough. The other is rather more.

Cannot think of how you could ever assign ownership on non payment without some sort of charge on the asset. Car worth enough for that?

 

[JEREMY HAWKE]

No
Terrible idea .
Your the employer and your opinion of this person could change overnight
Your running a business not a soup kitchen

 

[Ian J]

You need an agreement that if he leaves before repaying the loan the balance is deducted from his wages

 

[nelioneil]

I am hoping when you mean "I" you actually mean my company is lending an employee.

And you really need the employee to sign an agreement detailing the deductions from salary and entitlement to collect the remaining balance if leaving before full payment is settled.

 

[Fagin2021]

No
Terrible idea .
Your the employer and your opinion of this person could change overnight
Your running a business not a soup kitchen

Sound advice. Take it.

 

[Newchodge]

Given your experience with the other employee for whom you acted as guarantor on a flat, do you think you may need to review whether you are an employer or a charity?

 

[Andre78]

Given your experience with the other employee for whom you acted as guarantor on a flat, do you think you may need to review whether you are an employer or a charity?

I have never acted as a guarantor for an employee for anything before, let alone a flat.

 

[Newchodge]

I have never acted as a guarantor for an employee for anything before, let alone a flat.

My apologies, I was mixing you up with someone else's post from a couple of days ago.

 

[The Byre]

I am lending an employee 1k this month to put towards a car.

This week's star prize for a really, really bad idea!

In Hamlet (son of Piglet) Polonius told his son Laertes "Neither borrower nor lender be; for loan oft loses both itself and friend."

The implication is obvious - foxy old Polonius was afraid that Laertes was about to touch him for a fiver!

For pity's sake, take @JEREMY HAWKE's advice!

 

[Mark T Jones]

There is a saying 'before you borrow money from a friend, decide which you need the most'. It also works for lending

Personally, if you decide its a solid plan I wouldn't bother investing in 'watertight ' contracts just get a standard form and agree/document terms

If they are going to default on the primary lian you will be p!55ing in the wind chasing for recovery

 

[Andre78]

Let me clarify things a little more. Yes the business is going to lend him £1000 to put towards a car. In part because he has company vehicle and I would like to reduce its usage for personal travel. I'm not too bothered because he is advertising the business but it would be better that he also had his own car for many reasons.

I'm considering either lending or guaranteeing finance of a greater amount on one condition. That he buy a vehicle that not only he can use for private work but the business can also rent from time to time when needed. In effect a pick up truck with crew cab and tipper body. He and my my business would benefit greatly from its utility but I cannot yet justify the whole purchase of one due to too sporadic usage.

So, in essence. Hypothetically speaking, if I could cover myself legally to a significant degree I thought it might be beneficial to all parties if A- he had a decent long lasting vehicle that is sufficient for family and work - B he could privately earn off the back of it - C The business could financially gain from having it at its disposal whilst increasing his income by hiring to the business.

Obviously, this all hinges on how much I can cover my own backside on this. Which is the question. The question is not, should I do it or not.

 

[Andre78]

This week's star prize for a really, really bad idea!

In Hamlet (son of Piglet) Polonius told his son Laertes "Neither borrower nor lender be; for loan oft loses both itself and friend."

The implication is obvious - foxy old Polonius was afraid that Laertes was about to touch him for a fiver!

For pity's sake, take @JEREMY HAWKE's advice!

My greatest god given innate quality is judgement of character. I am not in the least bit concerned about lending him £1000.

 

[Mark T Jones]

Personally I'd buy the vehicle through the business and low them to use it in a pre-determined basis

As I said in my other post, if they decide to default on the primary agreement, your chances of rediscovery are low, particularly if you aren't familiar with the processes involved

 

[Mark T Jones]

My greatest god given innate quality is judgement of character. I am not in the least bit concerned about lending him £1000.

Having worked in lending for 30+ years, 'judge of character ' is the nadir of good policy

 

[The Byre]

Then go ahead! It ain't a great deal of money and he would not want to lose his job and if you trust him, then that should be good enough! As @Mark T Jones says, a simple agreement on a piece of paper should be enough!

 

[bodgitt&scarperLTD]

Let me clarify things a little more. Yes the business is going to lend him £1000 to put towards a car. In part because he has company vehicle and I would like to reduce its usage for personal travel. I'm not too bothered because he is advertising the business but it would be better that he also had his own car for many reasons.

I'm considering either lending or guaranteeing finance of a greater amount on one condition. That he buy a vehicle that not only he can use for private work but the business can also rent from time to time when needed. In effect a pick up truck with crew cab and tipper body. He and my my business would benefit greatly from its utility but I cannot yet justify the whole purchase of one due to too sporadic usage.

So, in essence. Hypothetically speaking, if I could cover myself legally to a significant degree I thought it might be beneficial to all parties if A- he had a decent long lasting vehicle that is sufficient for family and work - B he could privately earn off the back of it - C The business could financially gain from having it at its disposal whilst increasing his income by hiring to the business.

Obviously, this all hinges on how much I can cover my own backside on this. Which is the question. The question is not, should I do it or not.

Bad idea. If he's going to earn privately off the back of it, it won't be long before he sets up on his own.

If you really need it, finance it yourself and hire to to him.

 

[Andre78]

Personally I'd buy the vehicle through the business and low them to use it in a pre-determined basis

As I said in my other post, if they decide to default on the primary agreement, your chances of rediscovery are low, particularly if you aren't familiar with the processes involved

Can't justify it yet. Already have 3 vehicles but only 4 full time staff and a fairly permanent sub contractor. To justify its purchase and upkeep I'd need to set up another whole team and I don't want to expand like that. Next expansion is going to be small time manufacturing and workshop facilities. That's a year or 2 away.

 

[Andre78]

Bad idea. If he's going to earn privately off the back of it, it won't be long before he sets up on his own.

If you really need it, finance it yourself and hire to to him.

Not necessarily. My guys regularly hire my vehicles for private work on weekends. Not everyone wants to work 100 hours per week and invest every penny for 5+ years to get a business off the ground.

 

[Jass T]

Can't justify it yet. Already have 3 vehicles but only 4 full time staff and a fairly permanent sub contractor. To justify its purchase and upkeep I'd need to set up another whole team and I don't want to expand like that. Next expansion is going to be small time manufacturing and workshop facilities. That's a year or 2 away.

Could you not buy it. Then sell it to him on a loan agreement i.e it remains in your name until he has paid it off.
If he defaults or leaves the job, you can repossess and sell.

 

[Andre78]

Could you not buy it. Then sell it to him on a loan agreement i.e it remains in your name until he has paid it off.
If he defaults or leaves the job, you can repossess and sell.

That's the kind of thinking I was after ;-)

 

[JEREMY HAWKE]

Then they could wrap it around a tree

 

[Andre78]

Then they could wrap it around a tree

Full comp insurance.

 

[bodgitt&scarperLTD]

Not necessarily. My guys regularly hire my vehicles for private work on weekends. Not everyone wants to work 100 hours per week and invest every penny for 5+ years to get a business off the ground.

If you're getting manufacturing/workshop facilities then conversion of something like a Ranger to add a tipping back is pretty straightforward. I run older vehicles and have five, but only two employees. You can't beat having the right vehicle for the job, plus spare capacity.

It's an option that should be considered for such sporadic use IMHO. Brand new vehicles only make sense if they are the linchpin of the operation and are in daily use- the depreciation is too much otherwise.

There's also the issue of insurance to consider. My fleet policy costs me just £1800 for five vans/trucks, any driver. If I allowed one of my guys to use them from private work at the weekend, any 'income' from hiring them would be wiped out by the ongoing insurance increases following an accident. Especially if it turns out (as it almost certainly will) that they were not covered unless using it under your employ. Even if they are allowed to use them for social and commuting, there's no way they would be covered for their own 'business' use.

 

[Mark T Jones]

Full comp insurance.

Whilst drunk

The serious point being, there is no such thing as risk free in the world of lending

It's always a balance of quantifying and mitigating

 

[Andre78]

Having worked in lending for 30+ years, 'judge of character ' is the nadir of good policy

If I were dealing with 100's of borrowers per year and basing my judgement of each on an hour or 2 sit down in an office I would act in accordance. I'm not. I'm dealing with someone I've worked full time with for 2 years in all weather extremes. Has never taken a day of sick or turned up late or uttered a single grievance. A 32 year old man who has raised 4 children since the age of 16. One with autism, and home schooled them all to grow up to be happy and adjusted teenagers.

 

[Mark T Jones]

If I were dealing with 100's of borrowers per year and basing my judgement of each on an hour or 2 sit down in an office I would act in accordance. I'm not. I'm dealing with someone I've worked full time with for 2 years in all weather extremes. Has never taken a day of sick or turned up late or uttered a single grievance. A 32 year old man who has raised 4 children since the age of 16. One with autism, and home schooled them all to grow up to be happy and adjusted teenagers.

Then trust your judgement and take the risk

 

[JEREMY HAWKE]

If I were dealing with 100's of borrowers per year and basing my judgement of each on an hour or 2 sit down in an office I would act in accordance. I'm not. I'm dealing with someone I've worked full time with for 2 years in all weather extremes. Has never taken a day of sick or turned up late or uttered a single grievance. A 32 year old man who has raised 4 children since the age of 16. One with autism, and home schooled them all to grow up to be happy and adjusted teenagers.

This post tells me more about you than him
Its business

 

[Andre78]

This post tells me about you than him
Its business

It is business. I am not solely governed by a requirement to act clinically with the single objective of making money. Am I aware that this is not 100% a financially driven situation? Yes. Am I making calculations to mitigate imprudence. Yes.

 

[MBE2017]

Just do it OP, you obviously wish too, it’s just £1000.

 

[Andre78]

Just do it OP, you obviously wish too, it’s just £1000.

Without question I'm going to lend him the 1k. It's the other options I am considering which I'm deliberating over.

 

[MBE2017]

Without question I'm going to lend him the 1k. It's the other options I am considering which I'm deliberating over.

Down to you, your money. I can understand wishing to help the guy, and your thinking of helping your business as well. It carries a risk, what doesn’t in life?

 

[Paul Norman]

The key thing is that standing as guarantor moves the relationship from employer/employee to something else.

And that introduces a lack of clarity. And risk.

If, on a personal level, you want to help, crack on. But you are going to struggle to find anyone wearing a business advice hat that doesn't suggest this is not wise.

And as for covering the risk, you can't. The whole point is that you are taking a risk by being a guarantor. If you are happy to do that, do it. If not, don't. But there is not a reduced risk way.

Other than the buying the car and renting it to them options.

 

[Chris Ashdown]

Is this a £1000 car or just the deposit on a car, a £1000 car may well fall apart in a week and the new owner is pissed off he is still paying you each month for something he no longer has use of

 

[Financial-Modeller]

If I were dealing with 100's of borrowers per year and basing my judgement of each on an hour or 2 sit down in an office I would act in accordance. I'm not. I'm dealing with someone I've worked full time with for 2 years in all weather extremes. Has never taken a day of sick or turned up late or uttered a single grievance. A 32 year old man who has raised 4 children since the age of 16. One with autism, and home schooled them all to grow up to be happy and adjusted teenagers.

It's £1k.

Given that he's such a great employee - but not great enough that you pay him enough to buy a vehicle - why not just pay it to him as a bonus?

 

[Andre78]

It's £1k.

Given that he's such a great employee - but not great enough that you pay him enough to buy a vehicle - why not just pay it to him as a bonus?

Firstly this question is not about a £1000 loan which I will definitely give him. It is about figuring out how to create a deal where I could attain him a decent vehicle and guarantee the finance on it or something to that effect.

Secondly, he gets a generous performance bonus every May determined by the the profit the company makes.

Finally, he is paid near the top end of his market value for his job role with a further 8% pension and an incremental annual leave package and the staff divide all tips.

So spare me your unelucidated judgement.

 

[Mr D]

Firstly this question is not about a £1000 loan which I will definitely give him. It is about figuring out how to create a deal where I could attain him a decent vehicle and guarantee the finance on it or something to that effect.

Secondly, he gets a generous performance bonus every May determined by the the profit the company makes.

Finally, he is paid near the top end of his market value for his job role with a further 8% pension and an incremental annual leave package and the staff divide all tips.

So spare me your unelucidated judgement.

Nice of you to add more information as you go along.

Seriously though, what is to stop you buying the vehicle and letting him use it? That way you own the vehicle and there isn't any question of ownership or any change in relationship.

 

[Andre78]

Nice of you to add more information as you go along.

Seriously though, what is to stop you buying the vehicle and letting him use it? That way you own the vehicle and there isn't any question of ownership or any change in relationship.

To be fair the salient info is in the title which has no mention of a £1000 loan...

Can't justify the purchase atm. My daily business costs are as high as I'd like them to be with current staffing levels. The vehicle would be redundant for much of the time. Albeit lesser so as time passes. Timing in short is not now.

 

[MarkOnline]

Can't justify it yet. Already have 3 vehicles but only 4 full time staff and a fairly permanent sub contractor. To justify its purchase and upkeep I'd need to set up another whole team and I don't want to expand like that. Next expansion is going to be small time manufacturing and workshop facilities. That's a year or 2 away.

From the gist of your comments you want to help your employee and have a benefit to the company at the same time (which is fair enough) IMO you should buy the asset and give the employee the benefit. Your company is profitable but you havent had enough time to grow and build up the reserves to be able to do what you want.
I would wait a little longer until your cash position improves, Im sure the employee will understand.