Inlaws need financial help, looking for advice

[siggy_freud]

Hey all,

Inlaws have asked my wife and I for some financial help. It's taken us awhile to dig into what is going on, but here is what I know.

They have almost no cash on hand, so their options are limited.

- They owed the IRS 14k from last year, due to not withholding enough from a private consulting gig. Currently they owe 7k.

- They own a business, and took out a loan for 35k from OnDeck, which to me reads closer to a payday lending type of thing for businesses than a legitimate institution. The loan is a 15 month loan. On the 35k they will end up paying about 10.5k in interest +$800 in origination fees. Currently they owe 33k. I'm honestly not sure what all this loan was for. They are expanding to open a second shop, but I believe they used 7k from this loan to pay half of of the IRS debt. OnDeck debits them directly every day, for about $144 ($90 principle, $54 interest). Though the loan was made against the business, they guaranteed it against their private assets.

- They owe a vendor in their supply chain about 8k.

They need to pay back the 8k to get supply flowing again in time for Valentines day and Mothers day, which are huge money makers for their business.

They were seeking help in paying the 8k vendor debt, and 7k IRS debt. My advice was that first we need to figure how to get out of the OnDeck loan and get a legitimate business loan. My thought is that the OnDeck loan is crushing them with interest, and that a better loan would allow them to free up cashflow to pay down some of the other debts.

I also suggested they talk with the IRS and get on a repayment plan for the 7k, rather than borrowing from private lenders to pay the IRS.

I don't believe they have enough equity for a HELOC.

I told them we are willing to help, but that we have to address the OnDeck loan first, as I don't have the money or willingness to cover that one. If we could get that under control, I'd be willing to loan the business the cash to get their vendor sorted. I said even if they had the 7k for the IRS, they'd likely be better off doing a repayment plan with them, and using the cash against OnDeck.

Any thoughts on the advice here to them. This OnDeck loan seems crazy high in interest, but then again I don't know their credit situation either (guessing not great). But 30% interest seems nuts.

Thanks all, and sorry for the long mess post. Just got this info today and still sorting my thoughts.

[disneysteve]

What a mess.

The single best piece of advice I could possibly give you is to stay as far away from this disaster as you possibly can. Don't let yourself get sucked into their horrendous financial situation.

The have no cash on hand.
They are in debt to the IRS.
They took out a loan shark loan of 35K.
Despite all of that, they are trying to open a 2nd shop! With what assets?

These people don't have an f-ing clue what the hell they're doing. Don't let them drag you down with them.

Offer to help with advice and moral support. Help them find legit financing to get themselves away from the predatory loan. But I wouldn't put a penny of your own money into this black hole. You need to sit down with your wife and discuss this today and make sure you are both on the same page and go back to them as one united front. If she's going to waiver and want to do everything she can to "help" them, you're going to have big trouble ahead. Good luck.

[Nutria]

Your wife is the lynch pin.

• Is she hell-bent on pouring all of your assets into this lost cause because she irrationally loves her parents, or
• is she willing to stand firmly behind you while you tell them "No cash!", or
• worse... say that she'll stand behind you and then rag on you for years about not helping her mom and dad?

[kork13]

As much as I'd love to say you should help them however you can, I have to agree wholeheartedly with Steve. They clearly haven't been making good money choices (both a loan shark AND a significant IRS debt? Plus owing a supply vendor? ::shudder:: ). Give them your time, advice & support, but don't give them a dollar of your own money, unless you & your wife are financially and emotionally prepared to never see it again & consider it a gift.

Get them out from under the loan shark. That's priority #1. If their business is sound & can prove they're making good money, they should be able to secure a proper business loan. Also, a business loan should only be secured against the business' assets & income. Guaranteeing a loan against personal assets is asking for trouble... They should keep a dividing wall between themselves and their business to protect them from liability. Which reminds me... Is the business an LLC, or how is it Incorporated?

Just to clarify, is the tax debt personal income tax liability, or business tax liability? And to make sure we have a clear picture, what is their business' valuation? Is it solvent, or just buried in debt? If the business is insolvent, I would give strong consideration to claiming the business bankrupt.

[siggy_freud]

Wife and I have discussed it all. She trusts my financial judgement, especially because she believes if not for me she would have fallen into all of their bad financial decisions. I'm not worried about that aspect of it. Thanks for the advice guys. Much appreciated.

[Outdoorsygal]

I wouldn't help them with more money unless you want to donate it to them

You know their ability to manage money

Edited to add- Good for you !

[scfr]

The way I'm reading this, if you loaned money to them you would essentially become a business partner with them. (Or, at the very least, an investor in their business.)

From what you have said, it does not sound like they have any business savvy. I would not want to be a business partner or investor with them.

You have already given them some good, solid advice. If you really want to help them financially, do it in a way that your money won't get sucked in to the void that seems to be their business.

[thestrongprofessional]

This seems like a very difficult situation. I think it's important for you to talk with your spouse and explain your concerns. I think it would be extremely unwise for you to invest in this sinking ship and you need your spouse to support your decision. Good luck my friend.

Raphael

[siggy_freud]

Thanks again all.

To answer a few questions:

1. IRS debt is personal debt, but I believe some of it was paid for by the business loan. Told me wife it probably wasn't great to co-mingle those funds as it starts to break down the personal vs. business barrier that can protect their personal assets.

2. As far as I know the business is solvent. I still think they have more assets than what is owed. They have two big holidays for them coming up that make them a significant portion of their yearly income. They've been paying the $144 per day for 4 months. However the net result of that has been the 8k in supplier debt stacking up, that would otherwise not exist.

3. The business is an LLC from what I know.


I think for the moment we have decided not to help the business with cash, but rather give advice and try and help them get out from under the loan shark loan and into a legitimate business loan. If they can do that, and work with the IRS to create a payment plan, I think the business can generate enough cash flow to allow them to pay themselves for their time, as well as get them back on track with suppliers.

We agree that based on what we know at the moment the cash would be better to hold in reserve to help preserve more critical things for them, like housing, etc. should the situation turn worse. They put us up for a year in their home, rent free, which allowed us to save up and buy our first home, so I do feel like I owe them a debt, and would certainly allow them to do the same if they wanted to pursue that as a way to save up cash, but I also agree with the crowd that at this point, investing in this business a) wouldn't be an investment, and b) wouldn't likely change the outcome for the business anyways. I told my wife that the business would likely fail with our without our (as an example) 15k, so I'd rather have the 15k for what happens after. She is in complete agreement that we should help by offering advice, support, our time if needed, but not risk our finances for the business.

The problem is going to be getting them to heed advice, as I think they are really embarrassed by the situation, and for some reason feel that figuring it out alone is better than having to air the dirty laundry needed to let someone help them through it. To me that's kind of like not going to the doctor to treat cancer because you're embarrassed about being naked in front of them . . .

They did a great job of giving my wife a good moral compass. I think right now she's going through a patch of learning that parents are imperfect too, and that despite all of the great things they gave her in raising her, their financial judgement may have been a weakness.

[sv2007]

You're in a bad situation; also, you might imagine how difficult it was for them to ask for your help. I'd imagine bankruptcy isn't an option (but I don't know how much $40k is to you/your in-laws).

I'd feel obligated to help if I'm in your situation because it is a filial duty in my culture, but even without cultural considerations, I would want to help them because I know my wife would want to.

What is the degree of help?

For me, it'll be as much as I can. If I don't have enough money, I'd raise money. Re-fi, HELOC, selling my home, etc. wouldn't be out of the question for me.

[sblatner]

My only advice is that if you want to loan them money, gift it to them instead. Don't expect to be repaid. Make sure they know it is a gift. You wouldn't want a loan to affect your relationship.

[siggy_freud]

I think if the situation were different we'd be fine giving money. If there was a medical situation, they were losing a house, or other more personal things it would change our perspective. But I just don't see it now being a good idea to keep a business afloat that may not survive regardless of what we do.

We could cover all the debts in cash, but would hit a big chunk of our cash. Pretty much all of it aside from the EF .

[feh]

Haven't read the other responses, but my first reaction is to let them file for bankruptcy. It doesn't sound worthwhile to attempt to save their business, which is really a pair of concrete shoes.

[TexasHusker]

This is a toxic situation on a number of levels. The money part is actually the least concerning to me. I wouldn't do this. You might eventually need to pitch in to keep your inlaws off the streets or in a retirement home, but that would be an act of charity, which is a different animal.

[siggy_freud]

Update:

When my inlaws originally spoke with a credit union they were talking to a front person, not a loan officer. The counter person told them it sounded pretty bad and they weren't sure they'd get a loan.

At our behest they tried the credit union again and got through to a loan officer. They're working with them now and getting a business loan to wipe out the loan shark's loan and put them into a more manageable situation.

Once that is done I'll push on them to work with the IRS and get that situated, and then we can figure out how to make their vendor happy.

Small progress, but progress.