Lending money to relatives: Would you expect it back?

Tuesday March 30 2021
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A man counts a bundle of money. Experts advise that it is better to lend a relative who has showcased that they have a source of income to repay than one who does not. PHOTO/Rachel Mabala

By Dorothy Nakaweesi

Most people cherish their families that they would do anything to help in case one of them is in a financial fix.

Family could be immediate or nuclear family and sometimes extended family members who include our parents -father, mother, siblings, grandparents, aunties, uncles and cousins.

Just like the bible says in 1Timothy, chapter five verse eight, “If anyone does not provide for his relatives, and especially for members of his household, he has denied the faith and is worse than an unbeliever.”

Away from the bible teachings, culture requires us to take care of our family members first before anything.

Food, clothing, health care, education, financial support and moral care are some of the immediate things we extend to our families.

However, financial support comes in many ways. You may contribute within your means towards the rest of the needs because they rotate around money.

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But would you lend money to a family member and expect it back? 

Baker Tumuhaise, an entrepreneur dealing in food and real estate, says he can only lend money which he’s willing to lose in the event that one fails to pay back to save the family bond. When a family member asks for money, they are basically asking for a handout.

“Help them with an amount that you can donate and when it comes to borrowing you let then borrow elsewhere so that they are responsible in paying back,” Tumuhaise suggests.

This article takes you through the dos and don’ts of lending money to your family members.

Mr Newton Buteraba, the chief executive officer at House of Wealth, says: “The first do is to get a mindset that you are the lender, you are not a bar.”

This gives you a chance to know that some people think you are going to be giving them money.

“We can’t lend every relative. With some relatives, we shall have to just give, others we shall lend,” Buteraba says.

So whom should you lend?

According to Buteraba, lend a relative who has showcased that they have a source of income to repay.

“If one does not have a source of income to repay, you need to know their credibility because what happens with relatives is that emotional intelligence collides with financial intelligence. You are not thinking financially,” Buteraba ponders.

According to Buteraba, lend a mother or sibling to help them get them out of a problem. Here, emotional intelligence is at play and it means you are going to lose that money.

“So the very do that has to start is to get a mindset of the fact that not all the relatives can be helped. Some we have to give and to give we have to make sure we have a limit,” he advises.

Because once a relative gets to know that it is you with the money, without interest, he will recommend other relatives. Someone will say I don’t have Shs10m but have tried uncle so.

So make a list of all your relatives according to their credit limit. Without a credit limit, your relatives will access your money and they will take it without any return.

Buteraba says it is important to get a business plan, or think of a business plan, because it helps you get family members who ask for money while they are lying for something.

When a family member asks for money to start a business yet they want money to top up for land, they want money to complete the house.

Buteraba says it is wise to ask for a business plan to showcase what they are going to use the money for.

This will help you to realise whether they are honest or not.

“It is in a business plan that someone will say I expect to use your Shs5m and then in a space of two months, it will have given me Shs10m. There, you will know that this one is borrowing it to get good schemes,” he adds.

According to Buteraba, do not give the money if they have no written documentation. Remember a relative is so close to you and chances are high that when they fail, you need to get to a settlement.

Now, when you go into a settlement, a relative can say you didn’t give him Shs10m, you gave me Shs7m.

“When we try to settle things as relatives and family members, your brothers, sisters of your uncle will side with you so that you get your Shs10m yet for him he has told them I picked Shs7m,” he advises.

So, get proper documentation from the word go. If it is possible, let that documentation have witnesses who are family. That way, you won’t be bailed away. Everyone will know that you borrowed from your sister  or brother Shs10m.

Keep in mind that not all relatives should be lent, some relatives should not be lent money because they simply won’t repay it.

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