The do’s and don’ts of making personal loans to family and friends

Shakespeare once warned about the perils of borrowing and lending, but that advice seems a little outdated today. We live in a world where loans are often the only way to provide the capital necessary for large purchases, new businesses and many other financial endeavors that might require more start-up money that the person in question has at hand.

Loaning money to families and friends is often a way for folks to help out loved ones who are trying to make big changes in their lives. While it is a noble endeavor, statistics show that these debts are often left unpaid. Although it may seem like a ruthless way to conduct business with loved ones or close acquaintances, lenders in these situations must be prepared to know the right and the wrong way to approach these loans.

And once you do know this information, you’ll be looking for some help. That’s where Netlawman, where you can get all the help you need, enters the picture

Don’t trust it to a handshake

When you get involved in lending money to people who are close personal friends or even family members, you likely have developed some sort of trust with the borrower and might be tempted to make the loan on an informal basis. That’s fine if it’s a small amount, but the kind of loan that might be needed for something like a house purchase or business endeavor is likely to be significant enough to cause a dent in your personal finances if not repaid.

A promissory note detailing all the loan’s particulars, from the amount, the time in which it is to be repaid, the schedule for repayments, any interest that will be charged, and any other pertinent information, should be involved. This is a legally-binding document and will actually prevent the bad feelings and financial calamity that can arise when these situations are not properly undertaken.

Do your homework

You might think that a family member or friend is on the ball when it comes to finances and whatever it is that requires the loan, but do you know for sure? Taking their word for it can lead to big problems down the road.

It may seem mercenary, but it’s a must for lenders to find out as much as possible about the loan. If it’s for a new business, do they have a prospectus and when will that business start return a profit? How are the finances of the person involved? You need to see written documentation of these important details to save yourself, and the borrower, from future heartache and calamity.

Don’t be unrealistic

Can you afford to make this loan? It’s noble to want to help out, but putting yourself in deep financial stress for the time the loan is being repaid is not a good idea. Otherwise, you’ll end up in the kind of debt that requires a loan that family and friends might not be able to provide.

Make sure to do an honest evaluation of your finances to see if the loan is feasible.

Do seek professional help

The idea of lending to friends and family might appeal to you because it removes excessive paperwork from the process. But that paperwork is exactly what keeps the loan safe for all parties.

You can find excellent help online for just these types of loans. Don’t hesitate to seek out an impartial third party with experience in executing these kinds of loans and the documentation they entail.

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