Family Loans / Loaning to family members / Private Equity

Lending to Friends and Family

ImageI will once again revert back to my old friend, George Clason’s book “The Richest Man in Babylon.”  Chapter 6 talks about a spear maker who received a windfall from the King, and was then besieged hourly by requests for money, loans and investment schemes from friends and family.

We have all been there.
“I have always wanted to open a restaurant, and you say you love my cooking!”

Family members and friends think our success is theirs. How many times did people say to me, when I was growing up: “You’re smart…you’re lucky…the girl you are dating, her father is rich!” What does that have to do with the price of beans? You win the lottery and the family starts counting the money.

Family Responsibility.
“Can you please help me just a little bit, I am really tight this month, and in trouble…I just need $5,000 for a couple of months!”

Image(Then you can’t reach them because they went on vacation.)

Don’t get me wrong; we all want the best for our family and if we are in the enviable position to help provide better, and I am sure we all want to do it. However there is a fine line between being supportive and being a crutch and actually hurting them. Parents have had to deal with this since the beginning of time–to teach independence and self-worth. It can be drastic like “tough love” or simple lessons of responsibility, where one gets paid for chores around the house. Personally, I have worked since the age of 12, pushing one of those ice cream bikes up and down hills, and then of course McDonald’s and Kentucky Fried chicken outlets, (a rite of passage for most U.S. kids). Those were all  life lessons.

Business is Business.
When dealing with money and family or friends, you have three options here. The first is to treat any request like any other business opportunity.

Image

  • Does the project have merit?
  • Is there a reasonable exit to where you can get your money back?
  • Does the friend/family member have the skill sets or background to give the project a reasonable chance of success?
  • Is there security involved?
  • Have they come to you before and not repaid the money?
  • Do you have “spelled out,” written terms?

The second option (that I believe in even more) is to simply say you have a personal rule to never deal on financial matters with friends or family; your friendship/relationship is too valuable to you to ever risk–no matter what the situation is. You then ask them to please respect this.

There is always the third option: hide and change your number!

Advertisements

One thought on “Lending to Friends and Family

  1. Pingback: Two weeks in—how to make your 2014 New Year’s Resolutions stick | Win

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s