“Never borrow money from your family” is standard advice, and it applies equally to family businesses. Given today’s economy, however, people are needing to borrow money wherever than can find a lender. Banks are reluctant to loan. Credit card interest rates are very high. The economy is stagnant and bleeding from the Gulf oil disaster, from looming new taxes, from federal deficit spending, and from about 10 million workers without a job.
Who is not moved to lend money when their child or mother needs medical care but lacks insurance? When the fishing boats and restaurants stand empty and deserted along the Gulf Coast? When people are driven to suicide out of despair, when their life savings and all they worked for are lost? Who would turn their back on a family member seeking a loan to save their home from foreclosure? A deaf ear to a family member or relative begging for grocery money? For medicine? We would be monsters to treat one another as though money were more important than those we love.
Just remember, however, there is lending and there is wise lending. It is never good business to make personal loans or gifts with company funds. Far better for the owners of the business to be creative. Set up a family revolving fund with personal money earned from the business rather than encumber the business. If “loan” is the wrong word and what is really needed is a gift, set up amongst the family members a benevolent fund or a trust intended to provide for the welfare of the trustees and their dependents.
Family businesses are businesses. When they are not run with proper business procedures they will get into trouble with the IRS and with the law. They will likely also fail. It is not good business to make bad loans or unsecured or unprofitable loans. So move the loaning and gift giving away from the family business and into the realm of family and personal. Be careful not to bleed the business. Eventually it may be the only thing that stands between all of your family members and the wolf.
Be sure to check very carefully with your accountant and your attorney before loaning any company funds. Sound business practice may trigger hard feelings among some family members but much of this can be headed off by developing a sound company policy and, equally important for family peace, articulating that policy to everyone involved, long before anybody wants to borrow company money.