Should She Lend Him Money?

Dear Vicki: Brad and I met our senior year at college and have been friends for over 5 years now. We both found jobs in LA after college where I love working as a station chef for a well-known restaurant and he’s in computers. It’s never been romantic between us; we just have fun hanging out and are there for each other in tough times. He helped me through the loss of a very special aunt, I stood by him when his programming job was eliminated. Last week he announced that he’d developed what he thinks is a fantastic new software program but needs start-up funds. He knows I inherited money from my aunt, so asked if I would back him and assured me it will be a great investment. I really like Brad, and I really, really want to help him, so do you see any problem with lending him the money? Signed: Likely Lender in LA

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Dear Likely Lender: It’s a wonderful gift to have a great friend like Brad. Friendships like yours are very important personal relationships; we all need them in our lives. However, you are contemplating entering a business relationship with Brad, and that is a horse of a different color (as the old saying goes). It’s clear you like Brad, but how well do you really know him? Do you know what kind of business man he will be? Does he have any financial savvy? Is he a good salesman? Does he understand marketing? These are things you should know before investing in his business. But since you really, really want to help Brad, let’s look at whether a business relationship with him might be a good idea for you.

It’s an easy guess that your primary elemental personality is Earth. Wanting to help someone is a very Earth thing, as is excellence in the kitchen. It’s no wonder you love working as a station chef; it truly is right up your alley. Brad, on the other hand, sounds like he could be a primary Metal personality. Skill with computers and software design usually requires the precision and detail-orientation that are very characteristic of the Metal personality. In the Five Elements model, Earth and Metal relate via the Nurturing Cycle, with Earth feeding Metal. This is another big reason you really want to help Brad – an Earth personality’s attention and energy naturally flows toward Metal personalities. It would also explain why Brad came to you for help. Metal people are used to Earth people helping them. But just because a partnership of some sort feels natural to both of you, is a business relationship a good match?

In many ways, the difference between a friendship and a business connection can be seen in the expectation and timing of what is exchanged between the people involved. In a friendship, one of you may call the other more frequently for a while, then the other may be the one who calls more often. He helped you when you lost your aunt, and then some time later you were there when he lost his job. Friendship is a seesaw kind of give and take that is quite organic. A business relationship, however, should be anything but organic. And that is the issue here.

Business relationships should be defined by clear representations of what each person is bringing to the arrangement. There should be specific time frames, definitions of success, and minute details regarding what each party will do and by when. Issues like interest on the loan, timing of payments, penalties for missed payments, etc. need to be discussed and agreed on. And all of this should be in writing and signed by everyone who is part of the business relationship. The good news is that Metal people will love this kind of detail and concreteness. The bad news is that Earth people usually won’t. They don’t want to “insult” someone by creating a contract that implies the person won’t make good on their word. It feels unkind. They also aren’t likely to demand that the person they care about stick to the agreement if they know they are having trouble.

However, the act of putting down in writing what each person can expect from the business relationship actually serves to protect the personal relationship, especially when Earth personalities are involved. Not only will you naturally want to trust Brad, unless you have a strong secondary Metal or Wood personality (both of which bring a lot of structure), you won’t be particularly facile regarding what you should expect from Brad in a business relationship. Without that structure, and maybe even with it, you risk the possibility of damaging your personal relationship with Brad if things don’t work out well and he loses the money from your aunt. History shows that half of all new businesses fail within 3 to 5 years, so you absolutely should never loan out money you can’t afford to lose, either. A very wise Metal person (Shakespeare) once offered this warning: “For loan oft loses both itself and friend.”

The bottom line is that there are reasons people suggest never lending money to family or friends. When the payments aren’t timely or the venture isn’t successful, what to do about the lost money gets very messy, very quickly. Damaging your personal relationship with Brad will be especially hard on you as a primary Earth personality because lasting relationships are everything to Earth people. If you have your heart set on lending the money to Brad, at the very least please enlist the assistance of an attorney to draw up a contract between you and Brad regarding the terms of the loan. But think long and hard about doing this because, as Shakespeare warned, you run the risk of losing both the money and the friendship if things don’t work out well for Brad. Best of luck to you (and Brad)!

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4 thoughts on “Should She Lend Him Money?

  1. Also I noticed that she actually did not say Brad asked her to lend him the money; what he asked is for her to invest. That is something completely different. If the startup fails, she loses money and he loses his time, and is it under no obligation to pay her back. If the startup works out they both benefit financially.

    If it were me, even though I am really earthy, I would want to be so convinced that the startup would be fruitful, that I would have invested in it even if it wasn’t my friend’s. And I would need to know that if it fails and I lose my money my friendship will be unaffected. I’d also test myself to see whether there’s any sense in which I’m giving the money because I don’t want to lose the friendship.

    Occasionally a friend or relative has asked me to lend small amounts or large amounts of money (for me that is). My test has been, if it is not paid back will this change my feelings towards that person. And if I had a huge abundance, would I be happy to just give it to them.

    My sister is very slowly paying back a car loan that I helped her with, even though the car long since died. I allow her to continue to pay because she needs to do so. She’s my little sister and often feels infantilized by her older sisters so I don’t want to be a part of that.

    So in this case I would want to know that there was no sense in which this guy is being dependent. If it’s an amount that she can afford to lose, and she can see it as a fun investment like going on holiday or a spin at the casino, then jump in.

    Thanks for the story Vicky. I love the way that you bring five elements to life.

    • Laurel, you do seem really Earthy and that’s wonderful. If she does decide to lend Brad money, I do hope that Likely Lender will seek help to address the very issues you bring up here. Thank you!

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