Lending out your business cash will drive you to ruin

Some years back I was in dire financial distress that threatened to bring my business down. I went to a friend who seemed successful for bail out. I explained to him that I had exhausted all avenues and I desperately his help to bring my business on its feet.

He looked at me straight in the eyes asked whether I have ever been in scout movement while in school. I answered in the affirmative.

“Then you must have learnt that if by any chance your best friend or even your child, while on expedition falls into the river or dam, you should not jump in to rescue them unless you are a professional swimmer and trained rescuer. Else you risk losing two souls: theirs and yours.”

I nodded my head in agreement.

“You have just told me you are drowning in debts and professional lenders like banks cannot rescue you. Why then do you want me to risk my business trying to rescue you?” He responded casually oblivious of the pain he had inflicted on me.

He then reached out for a newspaper cutting and handed it over to me to read. It was about a person who was fighting to prevent his land from being auctioned over a loan he had guaranteed a friend using it as collateral.

At that point I understood why he was hesitant to loan me his business money but still felt he could have communicated his message in a better way.

Cases of business owners hurting or even driving their businesses to ruin because of lending friends in need money to rescue their ventures or execute deals are very common.

A person who is in business especially retail has the privilege of having cash streaming in almost always. This, if not checked could easily become a source of financial refuge for friends and other relations in distress.

However, in as much as you would like to help, and it is right to do so, you must know this money does not belong to you as a person. Either it is your business’ working capital or suppliers’ money if you get your goods on credit.

In case the money is not paid back on time or is not paid at all, and this is common, you risk ruining your business and relations.

Some people might disguise their request as business opportunity to benefit both of you. For example, they may tell you they have a deal with guaranteed pay once delivery is done, but need cash. You go ahead and finance it. Before you realise you are duped or your money has sunk, the guy will have told you several stories.

It may sound inhumane and insensitive to your distressed friends but using your business money or assets to bail out friends is like jumping into a deep dam to rescue your drowning friends when you know very well you do not know how to swim.

The best you should do is to help them with your own money or advise them on where to qualified financial advisors.

Mr Kiunga is a business trainer and the author of The Art of Entrepreneurship: Strategies to Succeed in a Competitive Market. [email protected]