Often we don’t think twice about lending a family member or close friend money – what’s a few dollars here and there amongst friends? But when the amount is considerably more than just a few bucks things can get tricky and relationships strained!
Before you know it you’re hiding out in the tool shed at the family picnic or feeling awkward about broaching the subject of how much you‘re owed with your best friend.
Someone who knows the ins and outs of financial transactions with a loved one is Blake Jennelle. He was kind enough to share his experience with me.
A young, aspiring entrepreneur Blake knew that professional investors and venture capitalists wouldn’t easily invest in a first time business, so as a last resort he turned to his mother, Michelle, for a loan.
Blake acknowledges that it was difficult to ask his mom for money considering the bad track record for start-up businesses and the real possibility she could lose everything she invested.
Unfortunately, this was exactly what happened to Blake and Michelle. Nonetheless, Michelle has no regrets about her decision to invest in her son’s company. She knew Blake’s strengths going into the investment and was willing to bet on his success.
However, it is imperative that we appreciate that neither of the parties involved went into the transaction light-heartedly. Blake was always upfront with his mother about the possibility of a loss so Michelle made sure not to put herself in a difficult situation by investing more than she could afford to lose.
The mother and son duo also sat down with a lawyer to put everything into writing before any money changed hands. Despite having complete trust in her son, Michelle understood that it was crucial for Blake to have everything done properly in order to protect both their interests.
Ultimately both parties believe that spelling out realistic expectations and signing on the dotted line was paramount in preserving their relationship.
Despite the financial loss suffered by both Blake and Michelle, their story is a positive one. They took all the correct steps before they entered into the transaction and as a result their strong relationship lives on.
Michelle doesn’t view the loss of her investment as a failure on her son’s part. Rather, she sees it as a development for Blake, from which he learnt lessons that will benefit him in his next venture.
Being upfront, realistic and honest is fundamental when loaning to a loved one and so is being completely comfortable with the figure you invest. Equally as important is getting the agreement down on paper to ensure everyone involved is well informed of the terms.
Websites such as prosper.com offer assistance in finding investors – if the bank and your family have said no – but also facilitate loaning between you and a known party by doing all the paperwork for you. Thus ensuring that you can begin your new business adventure and still have someone with whom to celebrate your success when it comes.
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One Response to “The Price of Friendship”
October 16th, 2012 at 11:24 am
A good point well made, Mary!