Whenever it comes to lending money to friends or family, I shiver a bit in my booties. It’s not that I don’t ever trust either of the parties involved (I usually do), but anytime you mix business with pleasure it has the chance of running amok. And the level of this “amock-ness” goes up proportionately with the number of benjamins we’re talkin’ about ;)
I’ve been lucky enough in recent past to come out 50/50 with these types of loans (big props to my brother, and negative nellies to my uncle), but I personally try to avoid it whenever possible. “Whenever possible”, however, can be tricky when it comes to relationships. Which is why we need your help today!
Fellow reader Bob recently got hit up by a friend in need and he’s asking for a little guidance:
“A coworker/friend called me tonight in a rough spot so to say. Due to either mismanagement, or addition of step kids, he is in a serious budget crunch in the field of $400. I initially agreed and told him to call me tomorrow, but as time progressed I kept thinking of all the horror stories of loaning money…
Is it inappropriate to ask for a collateral item, a signed document with both signatures, or do half now and half in 15 days? You just always hear stories of getting burned.”
Here was my response (via iPhone, so it’s kinda short):
Oh yeah man, whatever u do DEF get it in writing so everyone’s on the same page and understands the situation :)
As you mentioned, the reason your friend is in trouble is something to keep in mind. How is he going to get out of this “budget crunch” to pay you back? Usually it’s best to consider all money loaned to friends a “gift” just in case (worst situation, right?) cuz family and friends come first over money. And there’s nothing wrong with saying no too!
Just be honest with everything and make sure you’re happy with whatever decision :) And keep every last bit of it in writing.
Re-reading this I now see that his friend is also a co-worker which adds another incredibly big element to the pot. If this deal goes sour it now affects a bigger part of your life (friendship & career), making it even MORE important to make sure both parties are on the same page and communication is crystal clear. Friends understand and respect rules like signing a contract – esp if it means you are saving them from a world of hurt. And if they’re shady about it, then it makes your decision much much easier.
I don’t think I’d have the heart/balls to loan out $400 for X amount of months in this case, BUT I would certainly consider some sort of other arrangement. Perhaps a $200 revolving line of credit? I loan you $200 and if you pay it back at the end of the month, I’ll re-loan it out to you again? (Or maybe even start with $400 if you have the cash?) That would at least help him out for a month and hopefully establish some good rapport to gauge what you’re workin’ with.
It’s kinda hard to advise on limited information, but with all that we’ve got so far what would YOU suggest? Any other ideas to help our good brother out?