4 ms·

There are good reasons that many people avoid lending money to (or even doing business with) close friends and relatives. If the venture doesn't succeed, and th

There are good reasons that many people avoid lending money to (or even doing business with) close friends and relatives. If the venture doesn't succeed, and the friend is unable to repay the loan, it can create animosity and bitterness that wreck the relationship. Even if things go well, it can create an uncomfortable power dynamic that makes the relationship less pleasant and friendly.

emodendroket 8y ago
I also think a middle-class family is in the "sweet spot" where they have a lot to lose from offering a loan as opposed to either not having a lot to lose in the first place or being so well-off that they can easily just write off a bad investment.
- StillBored 8y ago
  I think both of your are correct, but to add another problem, its that there is sort of the understanding that a family member isn't going to try and get your house/car/whatever taken away to pay off the debt. So, family loans are often viewed more as gifts. I'm not going to give a family member 1/2 my life savings as a gift until it becomes an inheritance, unless I really believe in the business and am getting some kind of equity stake/collateral in return i'm not going to be making a "loan". Plus, its one thing to "invest" in someone buying an asset, like a house/motel/gas station/CNC mill/whatever, vs loaning someone money to start a graphics art business where the money is going to basically pay "salary" and once its spent there isn't anything left to sell when the business fails. Although, the one common thing I've seen a couple times, is an uncle/whatever paying for a college or a trade (like nursing) school under the "teach a man to fish" theory.
sidlls 8y ago
To some (admittedly fuzzy) degree what you describe is a symptom of what I describe, not a causal reason for the taboo or individualistic tendency to exist.
azernik 8y ago
I grew up in a community that was just coming out of this phase (the combined Israeli and Persian Jewish communities of LA). I think you're interpreting "relations" in a way too close to the "relatives" of the (relatively atomized) White American society. Informal immigrant aid networks are generally wider than "close friends and relatives" - they extend to distant cousins and friends-of-friends. For example, in this article the relevant quote is “If you are a Patel, lease a hotel” - Patels being a relatively broad caste, and a surname representing about 10% of all Indian-Americans, not a "family" in the American sense. For a concrete example of how this works in the Middle Eastern Jewish community, and historically in the Ashkenazi immigrant Jewish community: Instead of "hey uncle, I hear you have $50K lying around, could you loan me some?" it's "hello second cousin once removed, my uncle got me in touch with you - I hear you've got $50K lying around?" You're generally a step or two removed from the direct source of money. The act of the intermediary is a one-time intervention and said interaction is usually closed out with a direct thanks or a gift or both, rather than being an ongoing professional relationship. If the venture doesn't succeed you'll have an awkward relationship with the two-hops-removed acquaintance, and the one-hop-removed intermediary will know about it and be less likely to recommend you to others for credit, but real social consequences that extend to direct friends and relatives are reserved for those who are considered to have acted maliciously or irresponsibly (e.g. if it's clear you've blown the money on hookers and blackjack, you and possibly your children will be ostracized). Search for "credit" in this article on immigrant enclaves for some examples of communities with these kinds of social structures: https://pdfs.semanticscholar.org/433f/567bd158d95f0c2611489d8294ab64b9a376.pdf https://pdfs.semanticscholar.org/433f/567bd158d95f0c2611489d... (This also mentions different informal lending structures than the ones that I'm familiar with personally - instances in Korean and Latino communities of "lending circles" i.e. collective lending among peers, rather than from individual community eminences.)

emodendroket 8y ago

I also think a middle-class family is in the "sweet spot" where they have a lot to lose from offering a loan as opposed to either not having a lot to lose in the first place or being so well-off that they can easily just write off a bad investment.

StillBored 8y ago
I think both of your are correct, but to add another problem, its that there is sort of the understanding that a family member isn't going to try and get your house/car/whatever taken away to pay off the debt. So, family loans are often viewed more as gifts. I'm not going to give a family member 1/2 my life savings as a gift until it becomes an inheritance, unless I really believe in the business and am getting some kind of equity stake/collateral in return i'm not going to be making a "loan". Plus, its one thing to "invest" in someone buying an asset, like a house/motel/gas station/CNC mill/whatever, vs loaning someone money to start a graphics art business where the money is going to basically pay "salary" and once its spent there isn't anything left to sell when the business fails. Although, the one common thing I've seen a couple times, is an uncle/whatever paying for a college or a trade (like nursing) school under the "teach a man to fish" theory.

sidlls 8y ago

To some (admittedly fuzzy) degree what you describe is a symptom of what I describe, not a causal reason for the taboo or individualistic tendency to exist.

azernik 8y ago

I grew up in a community that was just coming out of this phase (the combined Israeli and Persian Jewish communities of LA). I think you're interpreting "relations" in a way too close to the "relatives" of the (relatively atomized) White American society. Informal immigrant aid networks are generally wider than "close friends and relatives" - they extend to distant cousins and friends-of-friends. For example, in this article the relevant quote is “If you are a Patel, lease a hotel” - Patels being a relatively broad caste, and a surname representing about 10% of all Indian-Americans, not a "family" in the American sense. For a concrete example of how this works in the Middle Eastern Jewish community, and historically in the Ashkenazi immigrant Jewish community: Instead of "hey uncle, I hear you have $50K lying around, could you loan me some?" it's "hello second cousin once removed, my uncle got me in touch with you - I hear you've got $50K lying around?" You're generally a step or two removed from the direct source of money. The act of the intermediary is a one-time intervention and said interaction is usually closed out with a direct thanks or a gift or both, rather than being an ongoing professional relationship. If the venture doesn't succeed you'll have an awkward relationship with the two-hops-removed acquaintance, and the one-hop-removed intermediary will know about it and be less likely to recommend you to others for credit, but real social consequences that extend to direct friends and relatives are reserved for those who are considered to have acted maliciously or irresponsibly (e.g. if it's clear you've blown the money on hookers and blackjack, you and possibly your children will be ostracized). Search for "credit" in this article on immigrant enclaves for some examples of communities with these kinds of social structures: https://pdfs.semanticscholar.org/433f/567bd158d95f0c2611489d8294ab64b9a376.pdf https://pdfs.semanticscholar.org/433f/567bd158d95f0c2611489d... (This also mentions different informal lending structures than the ones that I'm familiar with personally - instances in Korean and Latino communities of "lending circles" i.e. collective lending among peers, rather than from individual community eminences.)