THE BUSINESS — LAW BRIDGE

When the bank says no to a request for small business capital, the next call is frequently to mom and dad.  Many parents are unprepared for the ensuing business, financial and emotional challenges.

The nature of those challenges varies with the circumstances and parent-child relationship.  Here are five general areas of inquiry to help parents sort-out the issues:

• What is your child asking for?  Parents should first determine the seriousness of the child’s financial situation.  Is money for living expenses needed before the business loan can be addressed?  The child should provide a detailed explanation including the amount needed, the intended uses and how and when it will be repaid.
• Can you afford to make the loan?  The child should be told up front if the parents lack the wherewithal to fund the loan or if they can’t fund the amount requested.  Parents should consider how the loan would impact their lifestyle, in the short run, long run and, in the event of illness or death or if it is not repaid.
• Is it prudent to lend your child money for this purpose?  Lacking the skills, experience, resources and objectivity necessary to evaluate the financing request, parents should not make a decision until a business plan has been vetted.  If necessary, it should be explained to the child that pressure, such as “you don’t trust [or have confidence in] me,” or “if I lose this deal it will be your fault” only delay the process.  Parents should also be wary if there is any history of deception, unreliability or dishonesty.
• Is lending the money the best way to help?  If parents conclude that the business plan is faulty or that the child is not well suited for entrepreneurship, extending the loan would only set the child up for failure.  Instead, they should explore other avenues of helping.  Blaming past failures on circumstances or others may signal that the child has not learned from past experiences.
• What criteria will you use to decide?  Chances are that the parents will make their decision based on some combination of business criteria and love for their child.  Also, a parent may want to consider the interests of other stakeholders, such as other children or a spouse if the parent is in a second or later marriage.  The criteria should be established and clearly communicated to the child.