As a successful small business owner, you must stay within your budget and make sure that all the matters of your business are met. Without working within the confines of a budget and making sure all your expenses are met, you can literally turn your business upside-down and become financially unstable to where you either have to close your doors and/or file bankruptcy. So, as a successful business owner, you must make financial decisions every day! The following scenario is not uncommon, in terms of the details of the matter; but in many families, there are dynamics that occur, especially when one family member is financially sound and seemingly "wealthy". So, this is a case worth exploring BEFORE it ever comes up if it hasn't already. (Keep in mind, that by putting something in writing, even though you've agreed to loan someone money, often, it becomes a deterrent, because now it's official. Now, it is their signature is on the page. People who are even remotely considering not living up to their side of the agreement will back down when presented to them formally in writing. This is often a good strategy for simply calling their bluff; aside from the fact that an amount over $500.00 must be in writing under the Statute of Frauds.

Here's the Scenario: You have a very close family member that has come to you, and he has asked you for a loan of $5000.00 to invest in a start-up business. You have inquired as to why he has not gone to a bank or VSBDC (http://www.vsbdc.com/ (Links to an external site.)) for a loan, and his answer to you is that his credit is not good enough to substantiate a loan.

QUESTIONS FOR THIS CASE: (NOTE: Your answers need to be based on the scenario above.) 1. Would you refuse their request? Why or why not? What are your specific considerations for your decision? Explain in detail. 2. Would you ask for a business plan from him to determine if the business is viable? Why or why not? 3. If you reviewed his business plan, list 3-5 items that you would be looking for in terms of the business feasibility? (You can bullet these items, but explain each one and why they would be important to review.) 4. If it is part of an existing business, would you spend the time doing researching to find out if it's legitimate? Why or why not? What would be your rationale? 5. What is the difference between a gift and a loan? Say you decide to give him the money, would you give it to him as a gift or a loan? What would be your reasons for your decision? (Discuss the difference between the two, and what your reasoning would be in terms of consideration for both) 6. Say you go ahead and loan him the money, what terms would you want in your loan agreement? RESEARCH: Should You Lend Money to Family or Friends? By Andrew Beattie (Links to an external site.) | Updated June 21, 2018 https://www.investopedia.com/articles/pf/09/to-lend-or-not-to-lend.asp (Links to an external site.) 6 rules for loaning money to a family member https://www.businessinsider.com/rules-for-loaning-money-to-family-2016-10 (Links to an external site.) VSBDC http://www.vsbdc.com/ (Links to an external site.) What is a Loan Agreement? https://www.debt.org/credit/loans/contracts/ (Links to an external site.) 8 Key Terms to Consider When Reviewing a Loan Agreement https://legalvision.com.au/8-key-terms-to-consider-when-reviewing-a-loan-agreement/ (Links to an external site.) Loan Agreements with Family And Friends https://www.debt.org/credit/loans/friends-family/ (Links to an external site.) Statutory Contract Law and Legal Definition https://definitions.uslegal.com/s/statutory-contract/ (Links to an external site.) Ten Things to Consider When Reviewing Your Business Plan https://www.allbusiness.com/ten-things-to-consider-when-reviewing-your-business-plan-1735-1.html (Links to an external site.) How To Loan Someone Money And Actually Be Paid Back, According To Experts https://www.bustle.com/p/how-to-loan-someone-money-actually-be-paid-back-according-to-experts-11910851 (Links to an external site.) Neither a Borrower Nor a Lender Be https://literarydevices.net/neither-a-borrower-nor-a-lender-be/ (Links to an external site.)