A Helping Hand

LIKE OTHER SUCCESSFUL ENTREPRENEURS, waste industry executives often are in a position to help out family members or friends who are temporarily down on their luck. Sometimes, executives offer friends an office or field job with their own companies. Other times, they refer their family member or friend to acquaintances, customers and suppliers who have positions available. The following scenario demonstrates that making loans with strict terms is another way that business executives can extend a helping hand.

Eugene D., the owner of a thriving waste hauling firm, loves his extended family and enjoys spending holidays and vacations with them. Now and then, Eugene has helped out family members. However, he had never actually loaned any money to a family member until a nephew, Andrew, came to him with a plan.

A brainy, talented computer geek, Andrew made a so-so living as a free-lance information technology consultant. His few attempts in a traditional work environment were a disaster. Right after college, he went to work for a software company where his transparent scorn for his supervisor's know-how cost him his job after only two weeks. He resigned from his next job after the company owner refused Andrew's proposal for “restructuring” his division: fire the boss and put Andrew in charge.

Andrew's pitch to his uncle was blunt. “No one is going to hire me,” he said. “I need my own place, organized and managed my own way.”

“You're wrong.” Eugene replied. “I can see them hiring you, but I can't see them keeping you. Let me see your plan.”

Eugene read the 35-page document skeptically, of course. He was impressed, however, by how resolutely the concept and approach were laid out. Although the field — computer systems — reminded him of “garbage-in, garbage-out,” it was obviously not waste management. With Andrew's permission, Eugene showed the plan to a business acquaintance who, after reviewing the plan, told Eugene, “I think your nephew has got something here, but he'll need more money than he thinks.”

“Since it looks like I'm your only source,” Eugene eventually told Andrew, “I'm not going to lend you the $100,000 you want. You can't get underway without enough capital. I won't get involved unless you go along with $250,000.” Andrew agreed.

The loan agreement resembled a line of credit where Andrew could borrow in increments of $25,000 or more. Interest was pegged to the prime rate. Payments were to begin six months after the loan documents were signed.

Andrew persuaded a college friend to join him at the company. They found relatively cheap office space, bought used furniture and worked 12-hour days. Together, they slowly built the business, continually adjusting the product and service to meet the clients' needs. The business slowly grew, although making payroll was often a dicey situation.

“Having the money coming from a family member put more pressure on me than if the funds came from a bank,” Andrew confessed. “I couldn't let down Uncle Eugene.” When the company maxed out its credit limit, Andrew put expenses on his credit cards and took out a home equity loan.

At one point, Andrew asked his uncle to enlarge the loan cap by $50,000, but Eugene refused. Now, with expenses under control, receivables more reliable and loan payments on schedule, Andrew is glad his uncle stood firm. “We're running lean and efficient, and I've had to shape up how I face problems.”
Barry Shanoff Legal Editor Rockville, Md.