Family Loans: How To Lend With Family
Hey Taylor - My brother asked if I could loan him money for a food service company he’s launching. I trust him and like the concept but get a little nervous about lending money to family. Any advice? - Marjorie
Hey Marjorie - Family or otherwise, anxiety is always the right feeling when asked to lend money. Once you get past those initial nerves, you need to look past the family part and assess the situation logically.
- What’s the business? If you like the concept, this loan request has already passed the first test. The main reason I would advise someone not to loan money to a family member is if they feel guilted into doing so and otherwise wouldn’t put capital behind such a venture. If you think your brother understands the industry and knows about all the insurance, inventory, and staffing costs associated with food service, the family connection becomes moot. Do you think this business, as proposed by the business owner and with location in mind, has a chance to do well with the proper funding? If so, don’t dismiss the proposal.
- What’s the plan? One million “good” concepts get pitched at dining room tables every day. The trick is turning a bright idea into a profitable company, and that involves a solid business plan. If you’re going to invest in this company, you should request a detailed model for how money will get spent, returned, and reinvested. As a personal investor, you deserve as much say as you want in this company. If it makes sense, you might want to use your money to buy an active role in the operation. Angel investing can make you a lot of money while helping your brother grow the business. However, if you choose to move forward, make sure you get what you want out of this investment.
- How much are you spending? Like with any investment, don’t spend a penny more than what feels comfortable. Even with a great concept and the smartest brother on the planet, you still face plenty of risks with this kind of venture. You don’t want to put so much money on the line that an unforeseen disaster could sink multiple family members. Ignore the amount your brother asked for and think about what you can confidently invest - that’s what’s most important.
If you have a family member with a billion-dollar idea, you don’t want to miss out on it. At the same time, you don’t want to lose money on a bad idea just because of a sibling bond. Set aside the relationship and think about investing on your own terms. While you mull it over, your brother might want to have a look at a business funding article we’ve got up at GoFarWithKovar.com. Best of luck to both of you, Marjorie!