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A family member asks you for a $1,000 loan to help start a business.

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Posted by Briana ·

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it's never a good idea to loan money to family or friends. any money given to family is generally considered just that a gift and will never be repaid without a lot of heart ache and accusations. friends borrowing money is even worse. but if you do loan the money make sure you get a simple loan document that states an interest rate and the terms of the loan and what the consequences of failure to repay.

I would consider this an opportunity to support them in their "Dream Chasing". If I had any concern, I would rather still loan the money and maybe suggest meeting once a month over coffee to see how I could help encourage them in any way. I try to never forget what it feels like to wish I had someone that would give me a chance!

It really depends upon the family member. My son is very responsible and has proven he can and will pay back loans. He also has demonstrated that he understands being frugal. As such, I could see him running a "lean business"  -- a key characteristic of profitable, successful businesses. Additionally, he researches things, makes plans, and takes reasonable risks, mitigating losses whenever and wherever possible. So, in regards to him, I would loan the $1,000. (In a way, I already have. I gave him access to a computer, some green screen, internet service, etc for starting his YouTube channel. I expect nothing to be paid in exchange for the use of said materials. I only expect that he takes great care of them while they are in his possession and that he does nothing illegal via the internet service.)

However, with the rest of my family, I would be very hesitant. So much so, I doubt I would loan out $1,000 for them to start a business. 

I answered No, because they always say never to mix family and money. But I guess I could be swayed, depending on the details. If it was a fully researched and well thought out plan, I might be willing to help out. And that would also depend on what my financial situation was like at the time. Like if it was right now, I could do it, but don't exactly have money to throw away. But if it was for an emergency or medical reason, I'd be more inclined to help out.

I don't have that kind of money, but if I did, I probably would, depending on their business plan, how well thought out it is, what the odds are of making it, etc.  I'd probably invest if it were in an industry I know something about, such as writing (believe it or not, a freelance writing business does have startup costs!) or the restaurant business.  I'd also expect the relative to know their stuff.  In "The Richest Man in Babylon", the main character is offered an opportunity by a brick-maker to make an investment in jewelry. The investment goes bust because the brick-maker doesn't know enough about jewelry to realize he's being conned.  So if my brother, a brewer, came to me for a loan to open a brewery, I'd give him the money.  But if he came to me for a loan to open a landscaping company, I'd tell him to get some experience first.

My initial response was no, but depending on the family member and if the business plan was solid. I would definitely need to write up a contract for repayment.

This survey hit a nerve with me because back in January I loaned my niece (23) $400 with a promise to repay when she recieved her income tax refund. I know she was desperate for the money because it was for car insurance purposes. She needs her car to keep her job and she needs her job to repay me correct?

Well to date I havent seen a penny of that money. So heres the kicker! , her and her friend were over recently and they had the audacity to be discussing taking a B&B vacation. What?!....so I continue to tell her she has a lot of nerve planning a getaway and she hasnt even had the courtesy in 6 months to atleast say she didnt have ANYTHING? to give me. She has burned her bridge with me.

.....this story continues in a post Ive been meaning to put up.

There are many variables here.  With a solid business plan and the current (and previous) financial situation of everyone involved I would go for it, if I can trust them.  However, I would also consider this an investment on my part and seek a percentage of the company for a return.

I don't believe in loaning family members money.  That can destroy relationships.  If I had the funds, I would gift it.  If they tried to repay it later, fine.  But if they didn't, there would be no hard feelings because I gave them a gift.  By changing your mindset, you save yourself from hatred.  Remember: carrying unforgiveness is like you taking a lethal dose of poison and expecting that the other person will die.

I would loan the money if I were able to. However, I would do so with the belief that I may never see it again. I would hate for the loss of $1,000.00 to also cause the loss of a relationship with a close family member. 

If they can't get a loan from a bank or other financial institution they have already been pre-disqualified for a loan by people who are more prudent than I and have no emotional ties to the person.  This is where that handy saying "I wish I could but I can't" said each time with repeated requests from the family borrower will come in handy.

That happened to me last month which shocked me. I started eating some quinoa burgers for dinner and they are delicious. I also had a few vegetables to use. I also made a quinoa salad for dinner. I add vegetables to the quinoa cut them up very small. Quinoa has quite a bit of protein and is very filling. I usually have some money left over at the end of the month. I would recommend having beans on hand for those times when you run out of food. Think about other types of proteins.

We've given money often as "loans" to family members, and never saw it again. We are far from middle class, so those losses hurt. Perhaps other families would have better outcomes. But you asked about ours.

Since it is for a business, it might be wise to make a contract, just like any other loan. However, with peer to peer lending being a thing now, any family member who has a well researched idea and can sell it to another person, can get a legitimate loan.

"Be the person you needed when you were growing up"
I don't remember who said this quote, but it was the first thing that popped into my head when I read this survey. I know it would have helped a lot to have someone loan me $1,000 to start my business. It's difficult to get on your feet when your family doesn't support you in your early stages and I think it's quite selfish of them if they don't at least help out in some capacity. Even if you can't loan that much money, there are plenty of ways to help friends and families start their businesses.

We are retired and have had a few substantial unexpected expenses in the last year so we are being extremely frugal at this time.  Lending money to a family member to start a business is essentially a gift in my experience.  Getting repayment from a business venture is virtually non-existent, even from a family member.