Should i invest my money in to my brother in-laws business? He needs cash to pay vendors and taxes. He needs a minimum of 300k. He has been struggling to do bad business partners. His business makes money. It is just a hard one to get financing for. No it’s not illegal.
I am in almost the same scenario as your brother-in-law, where my business (homebuilding) is struggling due to market conditions. I know I haven’t made all the right decisions, but I really feel like this is out of my hands, as the Fed is literally trying to kill the industry. However, we are current with the IRS but are behind with a few suppliers. The good news is that my sales are picking back up as rates are falling, and I do think we’ll get through this within the next few months. I know my in-laws have cash sitting in the bank and would probably be willing to write a loan, but I will not ask them because I recognize that although things seem to be looking up, there’s always a possibility that something else happens and this business could fail despite my best efforts. The relationship is more important to me than saving my business. I wonder if your brother-in- law feels that way about you?
If you really want to help, here’s my advice: His business sounds like he is in serious trouble. Be very careful before you get involved. Assume you don’t know the full story, regardless of what he tells you. Owners in distress will do anything to save they business, even hide or distort the truth about their business’s situation. If you don’t understand his business fundamentals well enough that you could run the business yourself, then you have no business investing in it. If you do understand the fundamentals, and you really want to help, them make sure the structural issues that got him into this mess are fixed before you get involved. For example, if this really is due to bad partners, then make sure the partners are out if you step in. Finally, if after considering all of the above, you still want to help him, treasure an ownership stage in the company, not just a loan. Put yourself in a position to make sure he manages the business well.
If at any point in this process something seems fishy, then bow out and walk away. I tried baking someone out with their business 15 years ago (not family, fortunately), and it was singlehandedly the worst decision I’ve ever made. The business still failed, and I ended up in bankruptcy.