People often say: ‘Never, ever do business with friends or relatives.’
The precaution is worth noting.
Yet if people paid more attention to the following issues, then doing business with friends and relatives might not be such a problem.
Ask yourself these questions before lending money to family or friends:
1. Do I have the money to loan? This is important to make sure that you’re not acting purely out of emotion—for the friend or loved one—only to resent the loan later on.
2. What will be the terms for repayment, if any—one month, one year, etc.? Will I charge interest?
3. How will I feel—and what will I say/do—if the loan is not paid back by the time I expected?
4. What kind of track record does the borrower have? What kind of integrity does he/she exhibit?
5. (If a family member) Am I making this loan solely because I’m related to this person—and not also because he or she, as an individual, is someone I have reason to like and respect? This is particularly important because some people exploit the ‘blood is thicker than water’ mentality, and expect you to do them favors simply because they are blood relatives, and for no other reason.
People often say, ‘Don’t loan money to a friend unless you are prepared to never see it again.’ This is totally wrong. You don’t have to loan it in the first place. If you do loan it, then the decision was yours.
If someone in your life has earned the title ‘friend’ or ‘family,’ he or she will seek to pay it back. If you can afford to offer it as a gift, and the person has, in your judgment, earned such a gift, then simply state that you don’t expect to be paid back. But if it really is only a loan, you have to treat it as one.
Don’t send mixed messages to the borrower, acting sometimes like it’s a loan and at other times as if it were a gift. If you do, it’s your own fault when he sends you mixed signals in return.
Ask yourself these questions before borrowing money from family or friends:
1. Am I prepared to treat this as a loan, the same way I would with a bank—even though this is my friend/family member?
2. Do I have any hidden agendas? If so, name them now! Don’t operate on the pretense that this is a loan while really, deep inside, you’re expecting it to be a gift. This is a terrible error if you really, truly value this family relationship or friendship. It’s also a contradiction. It’s either a loan, or it’s a gift; it can’t be both. Don’t try to fool yourself or the loved one who’s doing you this favor.
3. Does the person from whom I’m borrowing have a history of doing favors, saying it’s fine, and then acting resentfully? Will the ‘free interest’ I’m obtaining for this favor be paid in the form of snide little comments and passively resentful looks in months to come? If so, it’s probably not worth it.