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 h

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.