What would you do?

[Hazir]

So, let's say you've got 3 family members who are running a small business together. Due to a problem they claim is of a temporary basis they need € 25.000,-- ($ 40.000,--) which they say they will pay back by the end of this year. For reasons you don't know they haven't been able yet to borrow money from another source. You have the money, but you also have other plans with it roughly at the time it would be paid back if all goes well.

Would you lend them the money? And if yes under which conditions?

[CitizenCain]

Never lend money you can't afford to lose. Especially with friends/family, lending money is a great way to screw up the relationship.

So I would lie and invent a reason I couldn't lend the money... of course, if you genuinely have 40 grand you don't mind losing, you could loan it to me so I can expand my black market import/export operations.

Right, so that's what I'd do - loan it to me for a 100% ROI in 6 short months!

[Hazir]

Never lend money you can't afford to lose. Especially with friends/family, lending money is a great way to screw up the relationship.

So I would lie and invent a reason I couldn't lend the money... of course, if you genuinely have 40 grand you don't mind losing, you could loan it to me so I can expand my black market import/export operations.

Right, so that's what I'd do - loan it to me for a 100% ROI in 6 short months!

That's the point, I would mind losing it. It wouldn't mean destitution for me to lose it, but it would seriously screw up a long term plan I have.

[Illusions]

My brother bought a $3000 guitar on a loan. He convinced my parents that he would be able to pay it off, and that it would help him establish credit, so they co-signed the loan for him. He had something like 12 months to pay the loan back. Come 11 months he only had paid off $1000. I loaned him $1500 to help pay it off. Apparently my dad also loaned him $500 too. I haven't seen my money since...

Are they going to become poor and/or destitute if you don't loan them the money? Or lose the business? This seems really down to more of whether or not you prefer the outcome of whatever happens to your three family members versus the outcome of whatever happens with what you intend to do with the money. I would bank on not seeing any of it, or at least not all of it if you loaned it out.

[CitizenCain]

That's the point, I would mind losing it. It wouldn't mean destitution for me to lose it, but it would seriously screw up a long term plan I have.

In which case, I'd say you should:

A) Not assume "all will go well." It never does. Assume something's going to get fucked up, and at best, they'll be a little late in repaying you.

B) Weigh the relative importance of your relationship with these family members against your long term plans for that money. (How much do you really care about them, what will them defaulting or being late repaying you do to the relationship, will you resent them if the loan screws up your plans, etc.)

Seems to me like a pretty straightforward risk/reward analysis from there (after you fill in the few remaining blanks, like the effect *not* lending the money would have on your relationship)... but of course, people tend to have trouble with those when they're personally invested in the situation.

Personally, I never lend out any serious amount of money to friends or family. Not anymore, anyway, since I got stiffed on a $10,000 loan. (And even that's not so much about the money as much as the fucking up the relationship thing.) Now, if they "need" a few hundred or a couple grand for whatever, I'll give it to 'em, and be pleasantly surprised that it's often paid back eventually, but lending money is just too full of pitfalls to make a habit of doing it with those you wish to remain close to.

[Loki]

Unless they only have a cash flow problem, I really fail to see how they can be so sure they could pay you back. They can genuinely believe that if they got this money, they'll be able to turn things around, but the reality is that the fact that they need this money suggests that this is unlikely to be true. If you are going to lend them the money, you should ask them to tell you how your money is going to help them generate sufficiently more revenue to pay you back on time. And as everyone else pointed out, lending to friends or relatives is generally a recipe for disaster.

[GGT]

Not enough info.

"Neither a borrower nor a lender be."

But if it's a dire situation for people you love, you could just gift the money. That could set up tangled feelings though, on both sides. ew

[Hazir]

Giving it to them is totally out of the question. That would just put a €25,000 hole in my own budget that I don't really want.

[GGT]

Giving it to them is totally out of the question. That would just put a €25,000 hole in my own budget that I don't really want.

If you can't afford to lose it, or give it, then don't lend it.

[CitizenCain]

If you can't afford to lose it, or give it, then don't lend it.

This.

Plus, what Loki said about the whole "if they need it [and for a year at that], it's unlikely that they're in a position to be able to repay it."

Sounds like it's more money than you can "afford" to lose, and there's not a great chance of getting it back, so... yeah.

[Dreadnaught]

What is the problem they claim to be having?

This just seems like a bad idea. I would focus on thinking of excuses not to lend it, EG I don't have that much, it's tied up in 12-month CDs or that getting the money would require selling stocks at a ludicrous tax penalty.

[Hazir]

Well, they haven't asked me directly, so I don't know all the ins and outs. But from what I understand they underestimated taxes due by this amount and now can't find the funds to cough it up.

Losing this money wouldn't really put me on the line, but I still would very much not like it since it's supposed to go towards paying off my mortgage late this year. I could get at it without too much trouble.

[Loki]

If you're going to seriously consider this, ask them how much profit they generated each of the last 3 years, and then ask them if they think they can cut costs by $40,000 next year without starving.

[Wraith]

If you're going to seriously consider this, ask them how much profit they generated each of the last 3 years, and then ask them if they think they can cut costs by $40,000 next year without starving.

He should only do that if he's pretty sure he wants to loan the money before hand.

I'd say don't do it. That's too much money to just hand over and I don't like your chances of seeing it again. If you do decide to do it anyways though, make sure to get the loan agreement on paper.

[GGT]

Another option is to only lend a smaller amount that you're comfortable gifting or losing.

The borrower should find others to help as needed, and it's not your responsibility to figure it out for him.

[Tempus Vernum]

For reasons you don't know they haven't been able yet to borrow money from another source.

That sounds like a fairly important thing to find out.

On top of all the other advice given, if they can't get a full loan could they get a partial loan? That would reduce the amount they require from you, which might make it more affordable from your end.

[Dreadnaught]

You know why this is a bad idea? Because it's obviously a bad idea.

[Hazir]

Yeah, I guess I'm simply never going to bring it up. That will send a clear enough message.

[Loki]

Can't they get some kind of an installment plan from the tax authorities? I know it's possible here.

[Hazir]

Can't they get some kind of an installment plan from the tax authorities? I know it's possible here.

That's what I was thinking too.

[Illusions]

Can't they get some kind of an installment plan from the tax authorities? I know it's possible here.

Well that could be part of the problem, maybe they haven't looked into an installment plan because they really don't want to pay it themselves, and are hoping someone else will cover it for them, and they'll pay them back "eventually".

[Angel_Mapper]

Yeah, definitely don't do it Hazir. Only do it if you absolutely don't care if you get the money back, which it doesn't sound like.

[gentry]

Can't they get some kind of an installment plan from the tax authorities? I know it's possible here.

This sounds profoundly more suspicious than that. If a small business owes that much, the risk of fraud rises dramatically.

I would find out what type of business this is. Stateside, it would likely be a partnership, and loans do all sorts of crazy things on 1065's. I'm no longer certain how things operate in the EU -- I have not kept up with IFRS, maybe someone here has the dual legal/auditing knowledge-- but this is all wrong.

If they mismanaged expenses this badly, why should you lend? If they are asking for money they'll never pay back, it's a scam that will permanently harm your relationship. Overall, I would uncver the true story behind all of this before making any decisions.

[Supermarioman]

Never loan anybody money, period.
It may make you feel bad sometimes, but that's what the banks are for.

[termite]

Err Hazir, any chance of lending me the 25k?

[Timbuk2]

Give it to a homeless shelter.

[termite]

Give it to a homeless shelter.

Now that's just silly, most homeless people don't even have bank accounts....

But seriously, I think Hazir does not want to lend these people any money but is possibly feeling compelled to do so for some reason but he certainly made it clear he doesn't wish to give the money away at all. I don't blame him either, he probably had to sit in a big government building doing nothing all day to get all that money so he really shouldn't waste it.

[Hazir]

Now that's just silly, most homeless people don't even have bank accounts....

But seriously, I think Hazir does not want to lend these people any money but is possibly feeling compelled to do so for some reason but he certainly made it clear he doesn't wish to give the money away at all. I don't blame him either, he probably had to sit in a big government building doing nothing all day to get all that money so he really shouldn't waste it.

Yeah, that. And the fact that I only have the cash to lend because I delayed paying off the remainder of my mortgage (crazy crisis gives me 2.5% on a savingsaccount and makes me pay 1.75% on the debt). That means that in a worst case scenario I would be stuck with a €25,000 debt I still have to repay and for which I have to save up money again.

This for me is the overriding consideration; that I could wind up with a debt (remaining) to the amount of the money I would lend. And that is before all the other considerations about risk; how big is the hole really, how profitable is their business, how certain is it that they can pay back before my lender starts charging me more than the puny 1.75% he charges me now.

[EyeKhan]

So, let's say you've got 3 family members who are running a small business together. Due to a problem they claim is of a temporary basis they need € 25.000,-- ($ 40.000,--) which they say they will pay back by the end of this year. For reasons you don't know they haven't been able yet to borrow money from another source. You have the money, but you also have other plans with it roughly at the time it would be paid back if all goes well.

Would you lend them the money? And if yes under which conditions?

I'd loan in for 5% interest. Nothing less. Yo7u? Interesting the comma slash decimal difference with Europa. It has caused me difficutly 8n worlk. You?

[CitizenCain]

I'd loan in for 5% interest.

That's an awful idea when dealing with friends/family.

It makes you look like a cheap, heartless bastard, even more so than just saying "no." For some reason, friends and family expect a ~0% interest rate on loaned money. (At least based on my experience and qualifiers like that there.)