Q: My youngest son wants to borrow $ 5,000 to start his own business. My wife is not afraid to tell him. She thinks we should just give him the money and expect nothing in return. I disagree. He has a very good track record with no money, so I'm a little worried that my investment lost. Should I lend him the money and hope for the best or just tell him no and hope he does not get too upset?
A: The first thing you should do, Jeff, is to determine whether this money to your son would be offered in the form of a grant, loan or investment. The wording of your question tells me that you have not done that all important distinction.
It sounds like your wife wants to do, something to be expected, returned a gift of money but the undying love of her last born son.
You, on the other hand, do not know if you should offer the money as a loan (should I lend him the money) or as an investment (worried that my investment to be lost).
Until you can make that distinction needs money to stay on the bench.
I have a very simple rule when it comes to lending money to relatives: NEVER, EVER loan money to anyone you might have to sit next to at Thanksgiving dinner.
"Son, give me that dressing and tell everyone the story of how you blew your old father's retirement money ..."
A loan from a family member is no different than a loan from a bank. You, Mr. Banker, are giving your son, sir borrower, the use of your money for a certain period of time and you expect to pay under certain conditions even if their business to the south the loan. Sure, you will probably be a bit more forgiving than a bank when the loan goes unpaid, but the damage to your personal relationship can restore extreme and difficult.
In the most basic terms if you borrow your son the money you he is the creditor and the debtor. Have you ever heard of a creditor and debtor have a very good relationship? Visa has ever just called to ask how you're doing? Does your mortgage company ever had a child named after you? Probably not.
The same rule applies with investing in a family business. I have raised money for various business ventures and not once did I ever think about asking my relatives to chip in. The last thing I would ever want to do is lose my mother's yard sale money. I had never heard the end of it!
An investment is made with the understanding that money is totally at risk with no guarantee of return. Even under the best circumstances, an investment in any business is a gamble. You are betting your money that the company will be successful and that you get a payback at some point in the future.
Hug your money real tight before the investment, because if the company does not make it you will never see your money.
You and your wife seem very concerned about making your son crazy, which is another big red flag calling for me. If your son is not mature enough to take the word without getting upset, "no" he's certainly not mature enough to start a business and to implement. Unless that company is a bicycle paper route, and even then I would not put my money on his chances of success.
The bottom line is this: if you can afford to give your son the money and can do so without attaching strings, then by all means give him the money and wish him well. Courageous entrepreneurial spirit and support him as a parent should.
However, do not expect anything in return and never spend the money, especially if he's the one carving the turkey on Thanksgiving Day.
Here's to your success!
Tim Knox, Entrepreneur, Author, Speaker, Radio Host
Founder, The Insiders Club, gives you the opportunity to start your business today
Bestselling author of "Everything I Know About Business I Learned From My Mama"
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