When it comes to loaning money to family and friends, the first thought that comes to mind is “Does anyone know a situation where this turned out well?” There are so many situations where someone loaned money to a friend, they did not repay it and the relationship was soured. A study at the end of 2019 by Bankrate.com showed that nearly half (46 percent) of adults who sent money to friends or family reported having a negative outcome, 37 percent said they lost money and 21 percent experienced a damaged relationship with the borrower. "If someone ever needs money and someone is in the position to bless them, give them the money but never make a loan to family or friends" Roughly 50% have issues! That just does not seem worth it. That’s not even playing the odds – it has been statistically proven that the lender will walk away with soured feelings towards a loved one even though “they were trying to help them.” The real question everyone should ask themselves is if something goes wrong in this deal is it worth their relationship? There is a lot of advice on loaning friends/family money: keep it professional, make sure it is structured like a business loan, keep emotions out of it, set specific terms and conditions, and more. However, if little sister, who is about to get evicted and cannot feed her daughter, has borrowed money from big sister, is big sister really going to be able to tell them to look at the terms and conditions of their agreement? That is a tough pill to swallow and quality relationships are too hard to come by. Instead, follow a basic life principle: Don’t loan money to family and friends! Ryan Eaton’s father, Rick, is a CPA and intelligent when it comes to finances. Rick used say if someone ever needs money and someone is in the position to bless them, give them the money but never make a loan to family or friends. He also said that giving money to someone who does not know how to handle it is like throwing it into a black hole. It might help temporarily, but in the long run the odds show that they will be in that situation again. People are likely to go back to someone who has helped them before. One time, Ryan had an employee who was in a tight spot. The husband lost his job with their family business because of a death in the family. There were a lot of variables in the family dynamics that put them in a position feeling like they had to take on some of the family debt. My employee let him know about the situation and he told them he wanted to help. However, Ryan knew that they were not handling their finances well. Given this was a close relationship and he did not want to provide personal financial coaching which might strain the relationship, Ryan let them know he would love to help. The first way he could help would be paying for them to go through Dave Ramsey’s Financial Peace University class. The wife seemed very interested and knew that they could do better. Ryan simply encourage her to talk with her husband and see what he thought about it and they would go from there. There is no point sending one spouse to a financial workshop if the other spouse is not on the same page. A week later it hit him that she had never mentioned anything else to him about the class. So, he called her into his office to check on her and see how everything was going. She let Ryan know they were still in a tight spot, but they had managed to keep their vehicle. He then proceeded to ask her if she had spoken with her husband about the class. She told him, “We know we could do better, but we have read Dave Ramsey’s book before and it didn’t help us much.” This was one of those situations his dad warned him about – the black hole. Instantly, he knew that if they were not willing to do anything to help their own situation, him trying to help them financially would not provide any value to their future. It may help them for a short time, but they would be back in the same boat at a future time. Analyzing a Request for Money An old mentor once told Ryan a story where he had someone in his Sunday school class approach him about being in a tight spot. His mentor listened to what the man was saying and realized $5,000 could really help this guy. He had been wise with his money but had really come on some hard times and it seemed like a worthy cause that he and a few members in their class could go in together to help a buddy out. So, the mentor decided that he could get 5 men to chip in and give $1,000 each to help their friend out. Once everyone had decided to participate in blessing this gentleman with $5,000, they presented it to him in private. He was so appreciative! He teared up and in the most genuine demeanor went on to tell the class how much it had meant to him. He explained that he thought he would have to dip into his savings to cover some of his expenses! When Ryan heard this story, all he could think is this has to be a joke! This guy had the funds available to solve the problem the whole time – he just didn’t want to use them. Instead, all his buddies pulled out of their savings to help him not deplete his. This taught Ryan another lesson – Analyze the situation prior to giving! Let’s look at some points for consideration when someone asks us for help: Is the person in a genuine hard spot from an unexpected situation? Did this happen through a death in the family, a disability, a sickness or disease, an auto accident, a natural disaster, or something of this magnitude? Are they in a financial mess because of bad decisions and habits? Are they spending more than they make, choosing pleasure over discipline, or buying things they can’t afford to keep? How close is the lender to this individual or family? What does this relationship mean to them? Have they asked for money before? Is it starting to feel like the problem is on repeat, are they doing this with all their friends, or is this the first time? Is this a sink or swim situation or a bump in the road? Are they losing their house tomorrow if they don’t come up with the money or is this maybe being late on a boat payment? Are they asking for an investment in their business or are they asking for free money? Some people ask for money for their business but never have a plan to repay the money. They call it an investment, but they are really looking at it as free money once deposited. Is the lender in a position to help? Are their financials in a place where they can help without jeopardizing their financial position. People should want to help people, if they can, but it is also their responsibility to make sure they can cover their own obligations first. Have they tried to get help from a bank? Is the lender the easiest form of money to access or just their first option? Do they have access to funds from savings accounts, 401k, or some other avenue? Usually this is not something most would ever consider, but experiences can and should be learned from. What does their financial background look like? This question hits several angles – do they have the intellect to know how to fix the problem, have they repeatedly been in this situation before, and what are the odds they will be in this situation again? Individually, each of these can be looked at and many things can be written about them, but one of the best things to remember is that if someone has resources – they will be asked for money at some point or another. Make sure there is a plan in place prior to being asked for money. Stuttering is not only embarrassing but it also puts one in a weaker position to help. Knowing how one feels and why they feel that way prior to something unexpectedly popping up is important. Life Advice on Cosigning Cosigning with friends and family is not something anyone should do. Everyone should heed advice from thousands of years ago which advises “Do not be one who shakes hands in pledge or puts up security for debts; if you lack the means to pay, your very bed will be snatched from under you.” Proverbs 22:26-27. While helping someone in need is not frowned upon but encouraged, cosigning is something that should always be avoided. There is no point in someone jeopardizing their financial success and future based on someone else’s integrity to pay back what they are obligated to do. Everyone has great intentions on the front end but when things get hairy people’s perspectives can change and what once seemed impossible all of a sudden can become a reality. Cosigning for someone else should always be a hard NO. When it comes to loaning money to family and friends, this is something each person should review and weigh out the pros and cons prior to moving forward. The old quote of “money reveals people’s true self” has a lot of validity to it and sometimes people can truly see the hidden ugly in others when it comes to money and selfishness!