RULE 91: Don’t Lend, Take Equities

Nigeria’s Minister of Works, Housing & Power, Barrister Babatunde Raji Fashola (SAN) with City People Magazine Publisher, Dr. Seye Kehinde

If you are asked
for a loan by somebody for a specific project such as starting a company or
expanding one, there are a variety of answers including:
• No
• Yes
• Yes but
• Yes on the
condition that
• Yes with
equity
• Yes with a
convertible loan.

Obviously ‘no’
can cause offence (see Rule 93). ‘Yes’ is a no-no, if you see what I
mean. Lending friends and family money isn’t on unless you are prepared to
write it off (see Rule 90) and generally people who want big loans
aren’t that close or they’d know you better. 

“You don’t lend, you offer to buy a share in
whatever project it is. If it is successful you recoup with interest. If it
fails, you shouldn’t have been lending – or buying into it – in the first
place. More fool you. The trouble with equity is that it’s often black and
white, hit or miss”.

This leaves us
with the last three – conditions, equity or convertible? There may be others of
course. Conditions: A mug’s game if
you ask me. On the condition you repay me when you’ve made your fortune. Hmm!
On the condition you don’t do anything silly with this. Hmm! On the condition
you only use this for the good of mankind. Hmm! Conditions is such a tricky one
but there are many who’ll ask for conditions – ‘If you would just be so good as
to lend me this I promise to … blah blah..’. Yeah, right. 
Advert
Equity: Better. You don’t lend, you offer to
buy a share in whatever project it is. If it is successful you recoup with
interest. If it fails, you shouldn’t have been lending – or buying into it – in
the first place. More fool you. The trouble with equity is that it’s often
black and white, hit or miss. You get your money back if the project is
successful – and perhaps that should be when the project is successful.
Convertible: Much better. You lend as a proper loan
with repayment details all worked out legally so it is a binding loan. But if
the project is successful- it should be or you shouldn’t be lending in the
first place – you convert the loan into equity. This way you get your money
back plus a big share of the profits. It sort of makes lending seem worthwhile.
If approached for a loan, asking for a convertible
loan will sort the wheat from the chaff, the serious from the not so serious.
It makes the serious stand up and be counted. If the project then fails you get
your money back – in theory at least. Obviously if the project fails there may
not be any money but you will have secured it against their property of course
(l know I said never to do that, but that was advice for you as a borrower; as
a lender always make sure you do). I even do this with my children if tempted
to lend them any money for big items like cars and houses. Yes you can have the
money but I want to own a share, so you can’t sell it if you get bored or
restless or whatever without my permission. Amazing how often they back off
when they know I’ll be their partner. And I also then know that they did buy
the item rather than something they’d rather not tell me about.
From The Book; The Rules of Wealth by
Richard Templar
(Read Rule
92
of Rule of Wealth tomorrow on Asabeafrika)
Read-to-Wealth Series







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