Employer wants to borrow $50k

[iasw]

I am so angry. My husband's employer wants to borrow $50k from my husband to cover expenses for the next year. It is a small consulting firm (a dozen or so employees). If you recall my username, you might remember a few years ago when the same employer owed him roughly that. He simply wasn't paying him, and husband continued to work. Yall were yelling RUN! Contact an attorney!

We did contact an attorney, got some things ironed out, and husband stayed put. Money was paid in full. No interest. (curse words).

The employer then outsourced payroll to a payroll company, and part of that was to help prevent this from happening again.

So he approaches my husband today offering a paltry 8-10% interest on $50k, to be paid back in 12 months (8%) or 24 months (10%). Didn't talk about collateral. Money would be used for payroll as there aren't really any other substantial business expenses (no office space, for instance).

My husband tells me this proposal and I am just livid. We aren't rolling in money, and to withdraw this from Vanguard would be way beyond my comfort zone. I do not want to do this. Full stop. My husband wants to at least consider it, or a partial amount, because he likes his job and work situation and doesn't want to leave the company.

I just can't do this again, be stressed about finances for a year.

IF and a big IF we go forward, I'd want a lien against the guy's house, making sure there was equity to cover it. And I'd want more than 8%. And what else?

If he can't get this as a business loan, then why do I need to make up the shortfall? I think he needs to find the money elsewhere or lay someone off, even if it's my husband.

So here's what I'd want from you, Bogleheads:

What would you do in this situation?

[RickBoglehead]

RUN.

[aude]

Absolutely not. Lie. Say you have no money. Work on resume and start interviewing in the meantime. It will be almost possible to collect an unsecured loan from a dying company.

[iasw]

What do I say to my husband? He is wanting to at least consider it! I think he is afraid of the job search, and if his best job options means he will be traveling a bit, he isn't wanting to do that.

I don't want him to have a job he dislikes, but at the same time, this is NOT reasonable.

[magicman]

I definitely would not loan the employer any money. Why wouldn't they use a bank for a loan? Borrowing from your employees is sketchy. I'd look for a new employer, as I'd be concern about the financial stability.

[voodoo72]

I am so angry. My husband's employer wants to borrow $50k from my husband to cover expenses for the next year. It is a small consulting firm (a dozen or so employees). If you recall my username, you might remember a few years ago when the same employer owed him roughly that. He simply wasn't paying him, and husband continued to work. Yall were yelling RUN! Contact an attorney!

We did contact an attorney, got some things ironed out, and husband stayed put. Money was paid in full. No interest. (curse words).

The employer then outsourced payroll to a payroll company, and part of that was to help prevent this from happening again.

So he approaches my husband today offering a paltry 8-10% interest on $50k, to be paid back in 12 months (8%) or 24 months (10%). Didn't talk about collateral. Money would be used for payroll as there aren't really any other substantial business expenses (no office space, for instance).

My husband tells me this proposal and I am just livid. We aren't rolling in money, and to withdraw this from Vanguard would be way beyond my comfort zone. I do not want to do this. Full stop. My husband wants to at least consider it, or a partial amount, because he likes his job and work situation and doesn't want to leave the company.

I just can't do this again, be stressed about finances for a year.

IF and a big IF we go forward, I'd want a lien against the guy's house, making sure there was equity to cover it. And I'd want more than 8%. And what else?

If he can't get this as a business loan, then why do I need to make up the shortfall? I think he needs to find the money elsewhere or lay someone off, even if it's my husband.

So here's what I'd want from you, Bogleheads:

What would you do in this situation?

I am going to blunt, you and your husband would be fools to lend your employer money, and if you do, you cannot blame anyone for yourself. This person has already shown you who he is, you have someone waving a big ASS RED FLAG in fron of your face, acknowledge it. PLease move on from this lunacy.

[niceguy7376]

I do not want to do this. Full stop. My husband wants to at least consider it, or a partial amount, because he likes his job and work situation and doesn't want to leave the company.

Looks like your husband need to decide between Life (and wife) Vs Work (and loan to employer).
I didnt check your past posts but would be curious as to how much he gets paid that he is thinking of loaning money to employer.
This is the first time I ever heard of employer asking money from employee.

[voodoo72]

What do I say to my husband? He is wanting to at least consider it! I think he is afraid of the job search, and if his best job options means he will be traveling a bit, he isn't wanting to do that.

I don't want him to have a job he dislikes, but at the same time, this is NOT reasonable.

Good lord, Im afraid for you, I dont care what you have to do, kick your husband, spit at him, fall on the floor screaming, smash windows, I dont know, DO NOT DO THIS.

[FoolMeOnce]

Run. Don't even consider this. Getting a lien on his house does not make it sound any better. If he is willing to put up his house to get the money, he could do so at a bank at a lower rate, right? If he still has a mortgage, you will fall in line behind the bank. Just no.

[BarbaricYawp]

Just so I'm clear... your husbands employer wants to borrow money from your husband so he can pay him? I know the absurdity doesn't escape you.

Your husband should be very, very aware of the corporate finances at this point, having been through all this last year. Assuming that there is a revenue positive business here -- and that you would be buying a viable customer list and future business -- why doesn't he simply sell the company to your husband? That way the guy bankrolling it is the guy who will benefit. And get to keep his job. If there isn't a going concern, or DH isn't interested in being in charge, your husband needs to get his resume in order ASAP. We acquired a company late last year that went the same way. The principal kept all the financials a secret so the employees were shocked one day to find themselves locked out with no back pay and no severance. Some of them had worked for this guy for decades.

And... remind your husband that Groundhog Day was last Saturday and you have no interest in repeating the last year.

Best of luck.

[Shallowpockets]

There are other employees, right? Yet he is asking your husband for the money. Because your husband came though before.
No ability for this business to get a conventional loan? What's with that? Obviously this business isn't doing well at all. This is just for pay roll, not even for expanding the business, captial expenditures.
You are of the right frame of mind.
Let the replies roll in on here and then have yoyr husband read it. Unless he drank too much of the kool aid.

[iasw]

I am 100% against this. It is just so absurd, so insulting, just NO. I should not be put in this position. At all. And neither should he. I will show him this thread.

Other (healthy) companies can make payroll, and he can probably still work remotely if he finds the right position.

Thank you for your input.

[nolesrule]

So basically the choices are 1) look for a job or 2) look for a job and be out $50k.

[smallpotato]

8% return is pretty good.

Sure, put all of your human capital and savings into one wobbly basket. What could go wrong?


RUN!

[Jack FFR1846]

You didn't say that he'd be out of a job if he says no. So he can just say no.

Otherwise, consider the boss as if he's a relative. Then consider the $50k to be a gift, not a loan. A gift that will never be paid back. And the business could go poof in 2 weeks.

[aude]

If the company tanks, he loses the money and the job.

[iasw]

If the company tanks, he loses the money and the job.

and if it doesn't tank...what's to say this won't keep happening? It will. Because it has.

[SevenBridgesRoad]

Since your wife is showing you this thread:

Three steps:
1) Don’t. Loan. Your. Employer. Money. For. Payroll.
2) Something is terribly wrong with your employer. Get a new job. Spend a few hundred or so on a resume writer consultant. Maybe an interview coach if you need one.
3) Get some big boy pants. Come on, man. You can do this.

[student]

No. You husband can tell his employer that you vetoed it. (This is a true statement as you do not want this to happen.)

[ResearchMed]

So basically the choices are 1) look for a job or 2) look for a job and be out $50k.

Alas, this sounds about right...

Clearly the cash flow problems were not temporary, and they were probably far more longstanding than you/your husband could know at the time.
But now... you know.

If possible - and this will be difficult - try to be supportive of his situation.
(I can't imagine if DH came home with this report/request, but I would know that it could not possibly be at all pleasant for him, including needing even needing to discuss it.)

You might be wanting to think about how to make resources last while he looks for another job... even if this doesn't result in immediate unemployment one way or the other.

Good luck!

RM

[ivk5]

I have been both an employee and a partner in consulting firms of various sizes. My impression is there is a serious management issue here that will not be resolved by making this loan. Either the business is not profitable or it is not adequately capitalized. In any case, the need for the loan is just a symptom.

Why is it likely to be better in 12-24 months? Do you both understand the business strategy and financials enough to stake your hard-earned savings on it?

I also think the only reasonable way to look at this is to assume the money will not be repaid. It is a gift with some possibility of repayment (perhaps with significant hassle if collateralized by personal assets). In my experience I have seen owners/founders bend over backwards to make sure debts/investments like this get repaid, even when that meant significant personal sacrifice on their part - but that only works when they are able (eg a sale of the business), and may come years later than you expect. Bottom line, don’t gamble with money you can’t afford to lose.

If you (pl!) decide to go fwd with this, one obvious question is whether to seek more upside (eg equity) rather than just a fixed interest rate, given the risk. Details on what makes sense will depend on a lot of things including structure, current cap table, etc.

Lastly, if I were in your shoes and not comfortable making the gift, I would want and expect my spouse to be understanding and supportive and prepared to seek other employment, on his own or with a more stable firm.

[tmcc]

Counteroffer for 51% controlling interest in the company for $50k @ 8%

[smallpotato]

...could go poof in 2 weeks.

It kind of sounds like the business has gone poof. Again.

If it's a consulting firm with good clients I would just absorb it and use the 50k to make it viable.
But I like having a business.

And, just in case it wasn't clear up above, if a bank won't loan this guy then you have no place even considering it.
[cue: <SouthPark> And it's gone...]

[ivk5]

What do I say to my husband? He is wanting to at least consider it! I think he is afraid of the job search, and if his best job options means he will be traveling a bit, he isn't wanting to do that.

I don't want him to have a job he dislikes, but at the same time, this is NOT reasonable.

To be clear, this is a former job that has become a (potential) high risk investment.

[HootingSloth]

First, I agree with everyone else that you should not do this.

Second, the market terms for a loan of this nature (by all appearances a bridge loan for a distressed business seeking to avoid bankruptcy) are probably more like a 12-15% interest rate, along with a first priority lien on all assets of the business, personal guarantees from all of the owners, and likely some sort of equity "kicker."

Third, lenders in this kind of situation need to have a lawyer for the loan documents, and the lender's legal fees typically are paid by the borrower. Legal fees would likely be in excess of $50,000 (possibly substantially in excess) because a small loan is not any simpler. So...

[8foot7]

This is a dumb idea and you should say no.

But if you want to play along, grab 76% of the business for 50k, and for every 10k that is paid back, return 5% of the business. This will still leave you as a majority shareholder and you can pay yourself with 76% of the profits.

[SrGrumpy]

I'd say Yes. But the boss has to become your personal butler until the loan is paid off.

[SanityCheck]

12-15 % rate of return ….fantastic....I say go for !!

What can possibly go wrong ?? (oh wait !; only about 10,000 potential snafu's...nevermind !)

[smallpotato]

But if you want to play along, grab 76% of the business for 50k...

Nooooo…
Don't pile into a sinking ship. You don't want any of "His" business.
You may want "The" business, and that's a different thing.
At least, if it were me...

[barnaclebob]

Lol, your husband needs a swift kick in the rear for even presenting this as more than a joke followed by him updating his resume.

[TLB]

As a business owner I see big red flags. Why doesn't his employer have a Line of credit to handle these cash shortages. If he does maybe there're maxed out. I would ask to see his financials, balance sheet, income statement, cash flow, receivables and payables. I would also ask him has he cashed out his 401-K to pay payroll, refinance his home.
I know companies have short falls but in today's economy most are doing okay. I would start looking for another job.

[Teague]

Reminds me of a place I worked for 40 years ago. Each Friday paycheck every employee would try to be first to the bank, before the account went dry for that week.

You say the money would be used for payroll because the company has no other significant expenses. Is this what the boss told hubby, or the way you figure it must be? I ask to make sure the employer doesn't have something else in mind, like seeing if hubby is interested in 8% for an expansion loan or similar project. But even then, it's concerning that the employer would not use more conventional financing.

[radiowave]

What happens if your husband says no?

[iasw]

Reminds me of a place I worked for 40 years ago. Each Friday paycheck every employee would try to be first to the bank, before the account went dry for that week.

You say the money would be used for payroll because the company has no other significant expenses. Is this what the boss told hubby, or the way you figure it must be? I ask to make sure the employer doesn't have something else in mind, like seeing if hubby is interested in 8% for an expansion loan or similar project.

Just that they all work remotely and don't have inventory or a physical space to maintain. Payroll is pretty much it.

If husband says "no," I'm not sure. Maybe boss explores other loan sources? Lays someone off?

[quantAndHold]

If their only expense is payroll, and they have persistent problems meeting payroll, that's kind of a sign that the company isn't viable.

In the bankruptcy, employee wages are paid before other creditors. Your $50k wouldn't stand a chance of being paid.

[investordoc]

NO NEVER NADA NICHT.

How do you know that the loving boss hasn't approached the other employees and asked for the same? It would be beyond stupid and you need to stand your ground.

[rantk81]

LOL. Most ridiculous idea I've read all day. heck NO.

[vineviz]

If the company tanks, he loses the money and the job.

and if it doesn't tank...what's to say this won't keep happening? It will. Because it has.

As others have said, the only good answer is "no".

That said, if husband is really set on considering this I suggest a counterproposal to the boss: husband agrees to forgo $50k in salary this year IN EXCHANGE for an equity stake in the company.

It's probably got about the same chance of ending up in a complete loss as the $50k cash loan (i.e. very high), but if it's REALLY just a temporary cash flow problem and not a sign of imminent demise then you end up with a lot more upside than the measly 8-10%.

Remember, the only good answer is "no". But gaining partial ownership of the business might be LESS bad than being an unsecured creditor.

P.S. Be sure to talk to your accountant AND a business law attorney before doing anything I suggest (except saying "no", of course).

[Nissanzx1]

Time for husband to get some boundaries. I wouldn’t consider this for 1 second. In fact, I would probably not be able to resist laughing out loud.

[Nate79]

You have a marriage problem, not a financial problem.

[Gnirk]

RUN as fast as you can.
Because:
A). it's highly likely you won't get the money back.
B). If the cash flow issue is bad now, chances are it will only get worse.
C). And who knows if this guy has paid his taxes? (IRS has first lien, I believe).

My DH owned his own business, and was part of a buying group of like business. One of the businesses had a cash flow problem, and one of the other members thought several of us should each loan him $10,000 to help him through. Of course, he promised to pay everyone back.
He ended up filing bankruptcy, and Not.One.Dime. was repaid.

[2pedals]

Tell him you love him dearly but he can't expect you to do this with him. The money is for your family and your future together. In order for this to work you both have to agree.

[GCD]

There's no gentle way to say this... your husband is ingenuous and you are stuck with him. No way should he have stuck around the first time. Now this???????

You know in your heart and your head what needs to be done. Your husband doesn't and he isn't thinking logically. He may never think logically. Do the best you can. I wish you luck. Truly I do.

[bob60014]

No offense but, there was nothing learned from the first incident? At minimum, looking for another job? That's a red flag!

[Teague]

Reminds me of a place I worked for 40 years ago. Each Friday paycheck every employee would try to be first to the bank, before the account went dry for that week.

You say the money would be used for payroll because the company has no other significant expenses. Is this what the boss told hubby, or the way you figure it must be? I ask to make sure the employer doesn't have something else in mind, like seeing if hubby is interested in 8% for an expansion loan or similar project.

Just that they all work remotely and don't have inventory or a physical space to maintain. Payroll is pretty much it.

If husband says "no," I'm not sure. Maybe boss explores other loan sources? Lays someone off?

Just to complete the picture, how about asking hubby what the boss said the money would be used for?

[smallpotato]

… But gaining partial ownership of the business might be LESS bad than being an unsecured creditor.

P.S. Be sure to talk to your accountant AND a business law attorney before doing anything I suggest (except saying "no", of course).

Pay attention to that P.S. if you consider this because business structure could put you on the hook for His debts...

So, everyone works from home, there is no capital except goodwill and a depleted cash reserve, hmmm...

Software? Call center? Remote server administration? Computer drafting? Some form of specialized engineering?

And just for the record, I don't think you have a marriage problem, at least not one I can see based on any of this discussion. Heck, I fly crazy ideas across my wife's bow and she is a pro at shooting them down. It's a check and balance thing. I need it. Keeps me thinking.

[Mister A]

So basically the choices are 1) look for a job or 2) look for a job and be out $50k.

This guy is pretty smart. I'm with him.

[scorcher31]

Definitely no as everyone else has said. I dont know enough about ownership of a company but I would have significant concern about acquiring equity in the company. Wouldn't this expose the OP to liability in a failing company. I know of physicians with volunteer spots on hospital boards that were sued for personal assets by creditors in failing hospital systems and they dont even get paid or have equity in the system. Unfortunately, I also think you may need to start looking at new job possibilities as there is a good chance the company is going to go under.

[warowits]

...RED FLAG...

+1

Don't be a fool. If a bank will not lend him the money with collateral, you shouldn't either.

There are no amount of protections which would persuade me to do this. They know your husband well enough to ask for 50K personal loan, what are the chances your husband will be willing to foreclose on their house (assuming you even can)?

[THY4373]

Wow, just wow. I think your husband is nuts. I'd use stronger language but this is a family site. I truly wish you the best of luck with this.