Putting Myself to the Test: Should I Loan Money to My Family?
I’ve thought a lot and have been interviewed about the wisdom of loaning money to relatives. The consensus is that it is usually not a good idea. If you do decide to lend money many believe that you will see the money returned. It’s better to think about the loan in your own mind as a gift, even if you sign a loan contract and charge interest.
Three weeks ago my 30′s something son called and asked if I would consider making a $100,000 investment in a business that would offer him a job opportunity as well as provide him with the future possibility of buying my equity stake out if, in fact, I became an investor.
My son Nick is a striving actor in LA. Like many actors he makes good money as a server at a high-end restaurant. Recently he injured his back after working 14 hours straight. The injury was a red flag and signaled to him that more rewarding work that wasn’t so physical would work better for him. Subsequently, he became acquainted with two addiction professionals that wanted to start a detox facility. If he could bring investors to the table he would have the opportunity to be an operation’s manager for the facility. Who popped into his mind? Why, Mom, of course!
When he asked me what I thought and whether I would consider an investment I was flooded with a mix of feelings. Yes, it would be a good thing to help my son find more gratifying work. But new businesses are risky, I don’t know the principals, I don’t know the addiction world and I don’t know, I don’t know…..yikes, what if I led with my heart, invested and it didn’t work? What would that do to Nick’s and my relationship? Yet I didn’t want to reject the idea outright.
How could I protect myself, consider Nick’s request and ultimately make an effective decision, one that would preserve my money, our relationship and help Nick along his way?
Without sounding too excited or too skeptical I told him the first step was to send me a business plan. If the business plan appeared viable I’d then plan a trip to LA to meet the principals and fully discuss the business plan in person.
I’m writing this on the flight to LA. I’m prepared to listen, ask questions and most of all assess the principal’s motivation, character and ability and determination to execute the business plan. Will I invest? Stay tuned and watch for my blog on the return trip to Philadelphia.