Investing In Son's Business Could Cause A Real Family Feud

Q: My youngest son wants to borrow $5,000 toup just to ask how you're doing? Has your
start his own business. My wife is afraid to tell himmortgage company ever named a kid after you?
no. She thinks we should just give him the moneyProbably not.The same rule applies with investing
and not expect anything in return. I disagree. Hein a relative's business. I have raised money for
doesn't have a very good track record withseveral business ventures and not once did I ever
money, so I'm a little worried that my investmentthink about asking my relatives to chip in. The last
will be lost. Should I loan him the money and hopething I'd ever want to do is lose my mother's
for the best or just tell him no and hope heyard sale money. I'd never hear the end of it!An
doesn't get too upset?A: The first thing you needinvestment is made with the understanding that
to do, Jeff, is determine if this money would beyour money is totally at risk with no guarantee of
offered to your son in the form of a gift, loan orreturn. Even under the best of conditions an
investment. The very wording of your questioninvestment in any business is a gamble. You are
tells me that you have not yet made thatbetting your money that the business will be
all-important distinction.It sounds like your wifesuccessful and that you will get a payback at
wants to make a gift of the money, expectingsome point in the future.Hug your money real
nothing in return but the undying love of her lasttight before making the investment, because if
born son.You, on the other hand, don't know ifthe business doesn't make it, you will never see
you should offer the money as a loan (should Iyour money again.You and your wife also seem
loan him the money) or as an investmentvery worried about making your son mad, which
(worried that my investment will be lost).Until youraises another huge red flag for me. If your son
can make that distinction, your money shouldisn't mature enough to take the word "no"
remain in the bank.I have a very simple rule whenwithout getting upset, he's certainly not mature
it comes to loaning money to relatives: NEVER,enough to start and run a business. Unless that
EVER loan money to anyone you might have tobusiness is a bicycle paper route, and even then I
sit next to at Thanksgiving dinner."Son, pass mewouldn't put my money on his chances of
that dressing and tell everybody the story ofsuccess.The bottom line is this: if you can afford
how you blew your old dad's retirementto give your son the money and can do so
money..."A loan from a relative is no different thanwithout attaching strings to it, then by all means
a loan from a bank. You, Mr. Banker, are givinggive him the money and wish him well. Encourage
your son, Mr. Borrower, the use of your moneyhis entrepreneurial spirit and support him as a
for a specific period of time and you fully expectparent should.Do not, however, expect anything in
the loan to be paid back under specific terms,return and never bring up the money again,
even if his business goes south. Sure, you willespecially if he's the one carving the turkey on
probably be a little more forgiving than a bankThanksgiving Day.Here's to your success!Tim
when the loan goes unpaid, but the damage toKnoxSmall Business Q&A is written by veteran
your personal relationship could be extreme andentrepreneur and syndicated columnist, Tim Knox.
hard to repair.In the most basic of terms if youTim serves as the president and CEO of three
loan your son the money you become thesuccessful technology companies and is the
creditor and he becomes the debtor. Have youfounder of DropshipWholesale.net, an online
ever heard of a creditor and debtor having aorganization dedicated to the success of online
very good relationship? Has Visa ever called youand eBay entrepreneurs.