“Take care!”  It is something we say all the time, usually wishing someone well as we part.  But we need to do just that when entering into business dealings, regardless of who they’re with. We all want to help family and friends if we can and sometimes this means we enter arrangements we wouldn’t agree to with anyone else.  Business deals with family and friends can go sour too.  Take this real-life example:

Mum was elderly and unwell.  She had little income but did live in a mortgage-free house.  Her son was a businessman and had high hopes for his new venture.  All he needed was some money to kick it off.  Could Mum please guarantee a bank loan for him?  Her house could be the security and then she’d be in the clear as the business got on its feet and repaid the loan, probably within just a year or so.

Unfortunately, the business never even got up to its knees and the bank eventually wanted its money back.  The son still had no money, so the guarantor was called on.  The court enforced the written contract.  Mum lost her house – and the relationships within her family, especially with her son, were devastated.

Sadly, there have been many such cases, especially of parents trying to help children into houses or businesses.  Of course that’s a great thing to do, but we have to use both our hearts and our heads.

Before committing to guarantee someone else’s loan, or taking out a loan on someone else’s behalf, you need independent legal advice to make sure you’ve been informed of all the potential risks.  Banks should insist on this, but it is still your responsibility to be fully informed about business dealings you enter into – even with family members.  Or perhaps especially with family members, since you could lose not only money (or your home), but your most important relationships too.