Tips on how to lend money to family and friends

By Nairametrics Financials | 1 min read
10th October 2019
Tips on how to lend money to family and friends

Business deals with family and friends don't usually go as planned. This is why most business owners tend to shy away from doing business with family and friends.

If a family member or a friend is asking for a loan and you feel like you're about to be guilt-tripped into it, here are few things to do before loaning money to family or friends:

Make inquiries You need to ask the right questions so you find out in clear terms what the money will be used for and the chances of it being recovered. If it's not for a lucrative deal, you're probably never going to get it back. The person in question might not be totally honest with you but it's worth the try. Ask for time to decide then use that time to investigate some more. There's bound to be another family member or friend who knows the entire truth and is willing to come clean somehow.

Don't be sentimental about saying no There are no sentiments in business. If after weighing the pros and cons, you still aren't feeling their reasons for asking for a loan or your gut is telling you not to give them the loan, don't be too scared to let them know. State clearly, why you won't be able to give them the loan and leave no room for them to try and convince you.

Consider your own capabilities Just because they are family or friends you might be tempted to give even beyond what your account can carry. Be sure to weigh your own financial strength before granting anyone a loan or you might be the one in need of a loan soon. The best advice I've ever received on money and loans is to never loan what you can't forfeit.

Ask for interest The best way to ensure that family or friends understand that it's a loan and not an act of charity is to make it as business-like as possible. Ask for interest on your money and don't be sorry about it. The words 'wicked' and 'selfish' will be muttered a couple of times but if you're good at business you should be used to hearing those words. Don't let them get to you.

There should be an expiry date and consequences You may not go as far as asking for collateral but you have to define the duration of the loan and factor in the time value of money. Also inform them of possible consequences should they fail to pay at the due time. This is no time to mince words or they won't take you seriously. Don't cross your legs and wait it out either, when the time is drawing near make sure to constantly remind them.

Doing business with family and friends sure is a tricky business that's why you ought to thread with caution so you can protect your business from bad debt

Nairametrics Financials
Nairametrics is a leading financial resource company based in Nigeria, with special focus on financial literacy, investor advocacy and business intelligence. Nairametrics.com was founded by Ugochukwu "ugodre" Obi-chukwu and is owned by Nairametrics Financial Advocates Ltd.
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