If you’re a lawyer and understand the basics of contract law, you’re probably fine to use chatgpt to draw up a promissory note and a loan agreement and then review for sufficiency. Make sure you are lending to a legal entity and not the borrower personally or you could get into consumer finance regulated territory. A personal guarantee is fine and highly recommended. Ultimately, this loan is based on character/relationship and not how enforceable it is - if you go to foreclosure on this, there probably won’t be anything to seize and you’ll just get a judgment against the borrower. If there are any assets in the company, it might be worthwhile to file a UCC to secure the loan just in case. I might look at securing against any IP in case he tries to evade creditors and roll the IP into a new entity.
Interest accrues on the outstanding balance monthly. If the rate is the same on both options, you will pay the same amount of interest in the first month. The difference in total interest paid results from the lower payments - when you stretch the amortization over a longer period to lower the payment, you pay off less principal with each payment. The next month, your outstanding principal balance is higher in the longer term option, so more interest is charged.
If you’re wanting to reduce the total interest paid, you have to pay down the principal faster by paying more than your minimum payment, or reduce the interest rate. If you’re wanting to lower the total payment amount (size), then extending the amortization will lower your minimum payment, but will increase the amount of interest paid in total over the life of the loan.
If you extend the term at the same rate, your minimum payment will be lower, but as long as there’s no prepayment penalty, you can pay excess cashflow toward the principal to reduce the balance and the interest charged in the future. This lowers your leverage to cushion downturns but also holds your total interest paid at the same amount your initial loan if you continue the same payments.
If you’re wanting both a lower payment and less interest charged, you will have to refinance into a loan with a lower rate. Good luck doing that right now. WSJ Prime is 8.5%, and most loans will be a spread over that. Money was artificially free for the last few years. This is no longer the case.