Gifting Money to family business

rosepinkfluff

Hello,

I was wondering if anyone can help me my sister and I are planning to give our mother £30,000 over a 6month period to keep her (soletrader) business going until the cash flow starts coming about September/ October time. We will each be taking 15k on unsecured high street loans to do this.

Aside from the fact if business doesn't pick up and she can't repay us we will still be liable for the loan we are prepared to risk this however I wanted to be clear about gifting of money? are we best to:

- give the money straight to her as a gift
- pay her rent and over costs that the money will go towards directly ourselves so it doesn't even go through her books so to speak.
- put the money down as an 'investment' - if so are there any formal things you need to do to identify it as an investment rather than a gift?

If anyone can help I'd be really really grateful!!

BitterAndTwisted

You can give gifts of money to whoever you like. Whether your mother decides to live off that £30k and pay her bills with it or puts it into the business is up to her.

What I would question is why would someone need as much as £30k to live on for such a short period and also whether you and your sister could support such massive loan-repayments with no prospect of receiving any of it back. Giving or lending someone such a large amount from savings is one thing but getting into debt yourselves is quite another.

shy-but-need-help

I won't say don't do it, but I would strongly advise anyone considering what you are to take on some independant, objective advice on how financially viable the business is and what it's realistic prospects of surviving and picking up are. I say this because in 1998 I was in this exact same position- my parents business and only source of income was struggling, no bank or lender would consider them for a loan and so my sister and I were approached, my sister took the logical option and looked at it as a business, not as family, and decided not to help. My partner (now husband) and saw it as family suffering and helped. Long story short the business (which had been highly sucessful, hiring more than 50 people at some points, I learnt to drive in a jag!) it never picked up, it failed, my parents lost everything and I never saw a penny of it again, unfortunately things also took an entirely unexpected, impossible to forsee, downward turn for us too and we became unable to keep up with repayments. We began on a cycle of borrowing to live and, as you can see from my signature, in 2008 I had to file for bankruptcy.

We are now rebuilding but we'd be a decade further ahead in life if we'd have looked at the situation objectively and not emotionally in 1998. Yes, if we went back in time, I would still feel emotionally obliged to help- they're family, I adore them and they'd have been there for me too but if we did it all over I'd have told them I couldn't lend towards the business but I would help with their living costs if/when the lost their only source of income. I'd be alot further ahead if I'd have done that. It can put a tremendous strain on relationships, I would never hold it against my parents but they have felt awkward about it ever since.

Please get some proper financial advice about how risky the loan would be- although the cash flow is set to come in eventually alot can happen to other businesses before that time, people who owe her that money may go bankrupt, never bank on money until it's physically there.

onlyroz

Why can't she take out her own loan?

Mojisola

rosepinkfluff wrote: »

I was wondering if anyone can help me my sister and I are planning to give our mother £30,000 over a 6month period to keep her (soletrader) business going until the cash flow starts coming about September/ October time.

If she needs £30,000 to live for six months, you'd be doing her a big favour by showing her some of the MSE boards!

Emmzi

if you expect to be repaid, let's be clear, this is not a gift.

If the business case holds up, the bank will lend her the money. If it doesn't, and the bank won't, what is your greater financial insight that means you know better than an experienced lender?

Would you be better "buying" a share of the business?

BitterAndTwisted

Buying a share of the business would mean a change from sole trader to either a partnership or limited company. Both of which means a much greater financial and legal responsibility which the OP and sister may not be able or willing to take on. There are also costs involved in doing this including accountancy fees and company secretarial work

Thirty thousand pounds is a MASSIVE amount of debt to take on. I would be seriously looking at other ways to raise this rather than borrowing it myself.

hoogervaaner

I have propped up a family business and I used savings to do so. I was aware of the risk that this loan may not be repayed and secured it's repayment against one of the physical assets of the business in case the business went down.
What I'm trying to say is don't give/lend what you can't afford to lose and try to protect yourself.