Before you lend money, secure the loan and make sure you get repaid with these loan agreements and supporting documents. Download the templates, fill them in and have them signed before you advance the loan funds.
Quite often people who cannot get a loan from the usual sources (such as a bank) turn to family members or close friends to help them out. And you will probably feel a personal obligation to help out. If you offer to draw up a loan agreement or a promissory note, the borrower may feel offended that you don't trust them, that their word isn't good enough for you. This then adds a good measure of guilt to the feeling of obligation. Do not let your personal feelings sway your judgment. There's a reason why a bank won't lend them the money, and for that same reason you shouldn't lend them the money either - not without getting everything in writing first.
Set the interest rate at a reasonable level. Check with your bank to see what its prime lending rate is, and add another percentage point. That's as good a rate as the borrower could expect to get on a line of credit. Make sure the regular payments are high enough to pay off the debt within a reasonable time period, but not so high as to be difficult to maintain. And get some collateral security, such as a mortgage, or a pledge of vehicles or other assets which can be sold if the borrower defaults.
If you're lending money to a small business, it is also advisable to obtain Personal Guarantees from the business owners.
- Assignment of Loan Contracts $12.49 ID: 122
- Commercial Loan Proposal Letter $12.49 ID: 7417
- General Assignment of Book Debts $6.29 ID: 205
- Irrevocable Letter of Credit $12.49 ID: 5419
- Priorities Agreement Between Two Lenders $6.29 ID: 219
- Setoff Agreement for Mutual Debts $6.29 ID: 32
- Standstill Agreement for Developer Loan Obligations $29.99 ID: 255
- Subordination Agreement (long form) $17.99 ID: 886
- Subordination Agreement (short form) $6.29 ID: 591