Lifestyle

I learnt the hard way that lending money to family doesn’t always work out…

Feb 19, 2016

When my brother came to me to ask for money for his new business, I didn’t hesitate to say yes. We have always been close, being the only siblings each other had, and I knew he was a hard worker who would give his all to his job.

Mark wanted to open a store selling whole foods and produce; he planned to have a little cafe attached to the outside of the store where customers could enjoy a coffee and a bite to eat. I had seen Mark run a number of successful businesses throughout his career, so I had no doubt he could make this one a success too.

Although he’d made a bit of money throughout his time, he didn’t have the funds needed to get the business off the ground. He had to renovate the store, buy equipment and supplies and hire staff. The costs were huge, but he drew up a sensible business plan that reassured me he could make the money back and generate profit over a few years.

I lent Mark some money to get started, but it wasn’t enough. He put up what he could, but the rest would be covered by a bank loan. The bank said the only way they would approve the loan was if someone signed on as guarantor. I was a little hesitant when Mark first asked me, but eventually agreed believing in his dream and his drive to make the store a success.

Signing on as guarantor was risky, but my faith in Mark took precedent. The store opened in the spring and was quickly buzzing with customers. Business was steady and for a few months it looked like everything was going to work out. That’s the funny thing about business though; what’s popular one day can quickly become yesterday’s news as people drift towards the latest attraction and forget about what came before.

After a only a year and a half, it became clear that the business was failing. Mark had to lay off most of his staff and he couldn’t afford to keep up with his loan repayments. I was worried but he assured me he had it all under control. Not long after though, he was forced to close. He had missed too many repayments and his costs where through the roof.

I found out Mark owed over $500,000 and he couldn’t pay a cent of it himself. That’s when it really hit home for me. If Mark couldn’t pay back the money he owed, it would fall on me. By signing on as guarantor, I had essentially promised the bank I would pay them back whatever was owed. Soon I was receiving calls from the bank on a daily basis. I went in for a meeting where I was told I was legally bound to pay back all of the money myself.

I was completely gutted. I had worked my whole life to save for my retirement and my house. I had been lucky enough to make some smart investments along the way and had built up enough to live a comfortable and enjoyable retirement. My house was paid off and I was enjoying my life. Now, that was all about to change.

The bank acted fast, taking what it needed to get back the money. Over the next few months my accounts were virtually drained. It became clear that I would have to sell my house and draw down on my super. I managed to save a portion of my super, but it was not going to be enough to see me through retirement.

Throughout all of this Mark became progressively distant. I believe he felt embarrassed and humiliated by what had happened. As harsh as it sounds, he knew he had virtually ruined me.

After I sold my house, I found somewhere small to rent in a neighbourhood nearby. Thankfully, at 70 years old, I’m eligible for the pension, which I use to help pay the rent and the bills. I managed to cover the rest by being careful with my remaining super and investing it in places where it can generate a small amount of growth.

I’m still lucky in so many ways; I have my health and my friends and family. My son and daughter have both offered to help, but I know they’re not swimming in money and with children of their own, I don’t want to be a financial burden to them. I’m firmly of the belief that we should be the ones to look after our children; I don’t want it to end up the other way around.

Mark and I aren’t close anymore. The strain and pressure of the situation was too much for our relationship. He moved to a new city and doesn’t call very often. I know it’s because he feels guilty, but truthfully I feel like I’ve lost one of my best friends on top of everything else.

By talking about my situation with other people, I have come to realise how common situations like mine are. I’ve heard countless stories about other people who lent money to family members only to have it come back and bite them later. I hope that by sharing my story, I can warn other people to be careful when it comes to loaning money to friends and family.

No matter how much you care for them or believe in them you should always put your own finances first. Don’t risk ruining your future over someone else.