Private loans
And how to do them
Private loans are a tricky business and in these difficult times it may be tempting for a variety of reasons to enter into a private loan. I would caution anyone contemplating loaning or borrowing from friends, family or associates to be very clear on the reason why they are loaning to or borrowing from that source in the first place: Is the intention behind the loan the betterment of the borrower, or the lender, or both?
Lenders, if you can hand-on-heart say you are doing it for 100% altruistic reasons and you are not at all bothered about being repaid in future, then you can stop reading right here and go ahead. For you, helping someone in need is repayment enough and good on you! But, if you are only lending money to get a return on investment or ingratiate yourself or your family to someone or even if your only expectation is some gratitude or merely repayment, be extremely careful and proceed with caution. It always surprises me when people have lost their money (and friends) through a personal loan that hasn't worked out. It is not rocket science. If it looks risky, feels risky and sounds risky then it probably is risky and you probably shouldn't be doing it. And if you are going ahead despite that advice, at the very least (1) get some legal advice or do your research and (2) make sure the basic terms of the loan are recorded in writing and signed by all parties. You should think about securing the loan and selecting the appropriate security. Remember, not all "security" is really security in the legal sense. A lien, pledge or mortgage are real securities. A contract, an IOU, a gentleman's agreement are not security, but mere equitable interests or, to put it in simple terms, promises you may or may not be able to enforce by going to court.
Borrowers, if you're not able to secure a loan from a bank or other reputable institution, really ask yourself whether you should be borrowing. Do you have a fail-safe repayment plan. Do you "know" you will be able to repay the loan? Could anything go wrong? If so, what? Then think about what you can do to lessen your risk. You should also be insisting that the loan be recorded in writing and signed by both you and the lender. If possible, get some legal advice.
