Beware of parents bearing loans

Ken - Magnolia,TX — Tue, 23 Oct 2007 17:20:43 GMT

What about when parents borrow money from their children? How does that work out?

Beware of parents bearing loans

John, Detriot, MI — Tue, 23 Oct 2007 20:18:35 GMT

Lending to any family can be a disaster. Parents, children, siblings, uncles, aunts, cousins...even putting it in writing doesn't mean much unless the lender intends to litigate. The borrower knows that probably won't happen. The expectation should be that the money won't be returned and the relationship could be permanently damaged.

Beware of parents bearing loans

SB — Tue, 23 Oct 2007 22:32:32 GMT

There are a lot of things that can go horribly wrong on both sides. I work for my in-laws, and fortunately with my husband & I, it's just been sweat equity. But... 10 years ago we resigned military commissions, took an 80% pay cut & moved in with them to consolidate expenses. In 10 years the company has gone from 500k revenue to over 15 million. Two years before we joined my inlaws, they had my husband's grandfather co-sign a business loan where the bank required the grandfather to have an equity position. In-laws were desperate, so even though they didn't have a good relationship, they did it. Loan was paid off by their company, and ownership restructed. Fast forward 12 years. My mother in-law has a complete break with her father. Next thing we know we're being sued because the grandfather was never paid for his ownership. He never actually put a dime in the business - simply co-signed a loan. Well with the cost of litigation - blah blah blah - we ended up settling well north of six figures. It can happen and obviously did to us!

Beware of parents bearing loans

John Flynn, Boston, MA — Tue, 23 Oct 2007 22:40:06 GMT

Not wise, from personal experience. My father, a pretty wealthy guy to whom a few hundred thousand, or even a few million for that matter, doesn't mean all that much, decided to invest up to $500,000 in $100,000 tranches over a 1-2 year timeframe in a real estate investment company. We had institutional investors for the equity portions of the investments and a pool of debt lenders for leverage, but needed working capital for overhead. We drew up legal paperwork with milestones in the business for the ongoing investments and gave him a very healthy interest in the business. He went in with the first 2 investments, then my stepmother found out about it, and as we don't have the best relationship, she was angry and decided I wasn't worth the money. After approximately 9 months, we went to him for the third slug of equity and, even though the business was going gangbusters (this was multi-family development in the northeast US-100+ units- in the late 90's, early 00's, so things were going very well) he pulled the additional funding. We ended up being able to self fund it by draining our personal savings, retirement accounts, and working a few fees into deals (costing us much more in carried interest than was ideal for the first couple of deals) and have been very successful since, but my relationship with my father has never been the same and never will. Be very careful if you decide to go this route, even if your parents are of the very wealthy class and you think you're doing it all by the book legally and ethically. It can just make Thanksgiving and Christmas dinners, or the lack of, very difficult.

Beware of parents bearing loans

Rebecca, Washington D.C. — Wed, 24 Oct 2007 15:58:06 GMT

Borrowing money from family memebers should be avoided if at all possible not only for business but for any other reason as well. When it's for a business the risks are often higher but even for other reasons, it can cause strain on your relationships. Plus there are so many other avenues for borrowing money (banks, government, etc.) that family should really be a last resort.

Beware of parents bearing loans

Gabrielle, Michigan — Wed, 24 Oct 2007 16:34:47 GMT

My father insisted on "loaning" me the money to start my business, but only a small amount that he could afford to risk and I would be able to repay - no matter what happened to the business. When it comes to raising additional working capital, I am on my own. I prefer it this way! Every business owner needs to ask themselves this question: "What happens when my business goes sideways?" - if you're considering borrowing capital from family. If you don't have a good answer to this question - you shouldn't borrow from anyone, especially from parents or family members.

Beware of parents bearing loans

Mookie — Sun, 20 Apr 2008 00:10:09 GMT

When it comes to borowing money....We all my fel a little weary. If you have a solid business plan that is profitable without ripping of your customers.....then It would be a good idea. Click on the link read about an example
http://www.yelp.com/biz/vendorseek-com-mount-laurel

Beware of parents bearing loans

ak — Tue, 26 Aug 2008 02:35:18 GMT

A few years ago I signed a promissory note w/my parents for 100k, they said they wanted to help me buy a home but, they said the only legal way to get me the money was to do it as a loan which they would write off over 5 years between them as a gift. I was very reluctant to sign anything w/them as I had my own life and didn't want to risk getting enmeshed w/them and messing our relationship up and/or myself, but I was always reassurred the note would be "written off" each year(I assumed a tax write off providing benefit to them and protection to me/the note is decreasing each year I thought), it sounded cut and dried,in 5 years the money's mine,right? so I signed. About a year into it I discovered the note is only forgiven, not a write off, the note goes nowhere, I was crushed, I never intended to borrow a dime from these people and never would. So I need to keep looking over my shoulder the rest of my life w/my handy forgiveness letters in tow to defend myself from my own parents, ridiculous. My Dad did eventually file a gift tax return, but it's really strained our relationship and I still feel stress over this thing and haven't spent the money. So don't underestimate the emotional factor and make sure you know about the gift tax laws before you sign a note in a situation like this.

Beware of parents bearing loans

diane hayes — Sun, 14 Dec 2008 15:20:49 GMT

my child borrowed $50,000 from me when i only had $150,000. the child was coming out of a broken marriage where together they made triple of what i make. the child couldnt save on their own so i was expected to loan them the money. not a good thing to do to a parent...never loan your child money