Lend your money wisely. It can get as ridiculous as this. (Photo from mager, Flickr.com)

In these difficult times, it has become a common occurrence to have relatives come to you asking for financial assistance. There is no shortage of people who are unemployed and looking for financial assistance, and more often than not, people will oblige by handing over a small amount of money as a personal loan to tide them through the difficult times. While the amount loaned may be as small as $100, it can still be a strain on your finances. Getting the money back will surely send you to a pharmacist, seeking help for a headache you could have avoided.

Personal Loans to Relatives?

What usually starts as a small personal loan to a relative could easily turn bad in these difficult times. Relatives seem to feel that a personal loan from a relative is a gift that does not have to be paid back. This may be fine, as long as you are in a good financial position. However, things may be different when you need the money back, and excuses start coming out faster than you can drop your hat. Personal loans between relatives have a tendency of not being repaid, leading to hard feelings and strained relationships.

How to Avoid the Headaches

These headaches can be avoided if you apply some thought to what you may do or say, should a relative ask you for money. One solution is to simply say the dreaded word NO, and be done with it. This will strain your relationships, but without the bonus of a headache. Of course, if you feel that your relative really needs the money, make sure that you have some proof in your hands that the money was indeed a loan. This will give you an opportunity to get your money back, should you ever end up in court over this. Most people feel that documentation isn’t necessary when lending money to a relative, but things would be a lot easier if you documented every financial transaction you conducted, especially if money changes hands.

Don’t Loan if You Can’t Afford It!

A number of people have gone out of their way to help relatives by giving them a personal loan. Older parents who are emotionally attached to their children often end up lending money to their children, even though they cannot afford it. This also applies to any other relatives besides parents and children. Remember, your relative is choosing you because he thinks you have the money and not the other way around. They are the ones who are giving you the headache that you really do not need. Under the circumstances you are best advised to avoid these situations with a firm no instead of a yes. Finally if you do feel that your relative is having extreme difficulties and needs the money, you have every right to expect that the money is returned to you within a specified time. You also have the right to be compensated by charging an interest rate for the help you are extending.

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Employing relatives in a family business can be a reward path to debt relief, but some precautions are necessary. (Photo: flickr.com)

The search for debt relief has been a strong incentive for business owners to employ their relatives. Statistics are showing that of the six-million-member pool of small businesses in the U.S., about 20 percent of those with 100 employees or more, involve two or more family members. Analysts are speculating that these businesses have a greater ability to withstand bad markets and economic problems. There are some interesting reasons why their resilience may be something to watch.

Patiently Committed

The first trait these businesses have is that their owners and all family members involved tend to be patient entrepreneurs who understand the market. They tend to be “building conservatively over years and turning a deaf ear to the siren song of debt,” stated Matthew Brady, head of Barclays, a wealth-advisory group. He claimed that these types of owners and workers are more prone to focusing on “legacy and commitment” than dollar signs and profit. They are a breed of worker who will put their full efforts into building their businesses and don’t read small negative signs as disaster. Brady added, “These workers live by putting their hands to the plow, rather than interpreting the weather.”

One example of this is Boardroom Inc. This is a family-owned and operated publishing company in Stamford, Connecticut. The company began in 1972 at the direction of Martin Edelston. He employed his wife and three children. Edelston stated, “We’ve lived through ups and downs of the economy but giving up was never an option. This is our life, not just a business.” It’s this type of commitment to the business that’s built it up to sales of $100 million while maintaining no debt.

Issues That Arise (aka “The Ties That Bind”)

There are some issues that can arise from hiring family members, however. These issues can make debt relief the smallest of a business owner’s issues if they aren’t careful. Here are some tips to be aware of when owners debate hiring their family members.

• “Use your brain, not your heart,” cautioned Don Schwerzler, founder of Family Business Institute. Because a family member lost their job is not a good reason to automatically employ them. Business owners need to make sure there is an actual position the family member would be a good fit for, before hiring them.

• Owners shouldn’t use hiring a relative as a sure-fire way to find debt relief. The reality is that if a relative is doing a job well, they should be compensated well. They should be earning and have the earning potential equitable to someone coming in off the street.

• Decide what will happen if the family member doesn’t work out. Having a hiring board or advisory board can make firing decisions easier, but if the person to be let go is a relative who the owner hired, they normally have the job of firing them.

• Business owners should be willing to listen to their family member’s ideas. Sometimes it takes a fresh thought to push businesses to newer heights of success. Schwerzler said, “In great family businesses, there is a surprising amount of disagreement when new ideas are first being discussed.”

• Families need to have a way to stay focused on the business’s growth. It’s easy to become “too casual” when family members meet in the board room. Schwerzler suggested using a family business advisor to manage. They specialize in looking “for sources of friction—principally with [the owner].”

Making Family-Run Businesses Work

Family-run businesses can be successful and fulfilling. When a new business owner makes the decision to hire family as a debt relief tool, they may find themselves either wildly successful or bitterly disappointed. They should be aware of the situation and dynamics of the relationship. Ideally, having people who are automatically invested in the company is what owners want. They should monitor progress along the way, but it is a workable plan.