investing in friends business

Hello there,

My friend wants to invest in a partnership/proprietor based firm. The owner of the firm is trusted person and he needs additional funds to run business. It will be short term investment. They will set interest rates upon mutual agreement.

What kind of paper work / documents my friend should do?

Also what interest rate would be appropriate for investment of 2-4 lakhs Rs. for 3-4 months of period?

thanks