Shakespeare’s Polonius offers the sage
advice to his son Laertes in Hamlet “Neither a borrower nor a lender
be, for loan oft loses both itself and friend.” Again, in “The Merchant
of Venice” the pitfalls of lending to friends are discussed.
Consider this scenario: A friend calls
you and needs to see you urgently. It can’t be discussed on the
telephone; she must visit you personally. You oblige and she explains
that she has run into serious financial difficulty and requires a sum
of N50,000 immediately to assist with her car repairs. She will
definitely be out of the woods by the end of next month as she is
expecting some money that she is being owed. This is just to tide her
over until then. She promises to pay back within two months.
You are touched by the sorry tale and
you oblige. She thanks you and visits promptly the next morning to
collect the cash. Then, you don’t hear from her for several months; she
doesn’t answer your calls or respond to text messages and she totally
disregards your e-mails. After many months, you see your “friend”. When
you ask her why she didn’t return your calls, she says she lost her
phone along with all her numbers.
We all know that such excuses hold no
water; your friend is just avoiding you like the plague because you
lent her money! Apart from all this, she has bought a new car, whilst
yours is long overdue for a change, and been on holiday to Dubai!
Another year passes and you have seen her several times at social
occasions and the debt has never again been mentioned. It’s like it
never happened. Sound familiar?
Have you ever borrowed money from, or
lent money to friends or relatives? I mean an amount that means a lot
to you. Whether a loan is the odd N10,000, or bigger loans running into
hundreds of thousands of naira, it is reasonable to expect to be
repaid. You lend the money because you are good friends and you trust
them to keep their word or perhaps they have helped you out in the
past.
Money “palaver” breaks up or at the
minimum can strain friendships and family relationships. Sometimes,
trying to collect it breeds awkwardness, resentment, guilt, and anger.
It isn’t that lending money is the problem per se; it is that money
changes the nature of personal relationships. However, while
Shakespeare’s tales recount the pitfalls of lending money to friends, a
loan to a friend does not always have to be an unpleasant experience if
a few issues are considered.
Just trying to help a friend in need?
Naturally one should consider
supporting a friend or loved one facing a medical emergency, or other
serious need following the death of a family member, a job layoff,
divorce or to assist with their rent or children’s school fees.
You should know what the money is
needed for. If it is a sudden illness or calamity or other serious
need, then you should consider it. After all, that’s what friend’s are
for. Are you loaning your daughter N50,000 to put groceries on the
table while your son-in-law is out of a job? Think twice before
supporting an indulgence if it is to finance a new plasma TV, to buy
jewellery, or for a vacation, no matter how long awaited.
Should you charge interest on a loan to a friend?
It depends on the amount of the loan
and for how long the funds are needed. If a large sum is involved, you
may wish to charge some interest. It is not about exploiting your
friend; the fact is that if you lend money for an extended period,
without interest, by the time you get it back its value would have been
eroded by inflation.
Is it a loan or an investment? Is the
money an investment in your friend’s new business venture or do you
expect to get your money back in full? It’s easier to charge interest
if you are lending for a business.
How much should you lend?
Only you can determine how much you can
afford to lend and for how long. If your friend ran into difficulty and
couldn’t pay you back, will this put you in financial difficulty?
Things happen, unexpected events occur that could mean that you need
money in a hurry. Can your own emergency fund accommodate your
unexpected need as well as your friend’s crisis?
Remember most “experienced” borrowers,
approach several people simultaneously and can end up raising a tidy
sum. Don’t feel obliged to put up the entire amount; a percentage would
help.
Put it in writing
Don’t be too casual about lending
money. It can be a bit embarrassing but it is only decent for a loan
request to come with a repayment proposal. What’s the borrower’s track
record like? Notorious borrowers become known for this, so don’t be the
one to get caught out.
Smaller amounts can be lent without any
documentation but for larger amounts, put something in writing.
Although such a written agreement or promissory note helps to lay out
the general terms of the loan, it is not usually necessary to involve
lawyers.
The name of the lender
The name of the borrower
The loan amount
The date of loan
The date or schedule of repayment
Rate of interest (if applicable)
Collateral (if any)
Penalty for late payment
Both of your signatures
Once you have lent money, try not to
dwell on it and make your friend feel obliged to you as this can strain
the relationship. Don’t change the way you treat the recipient, don’t
expect special favours or change your expectations of them. Be
discreet; the last thing your friend wants is for you to publicize the
fact that you lent them money.
How do you say “no”?
It is better to just say no than to
lend to someone who may not have the ability to pay you back. If you
can’t afford to part with any money at this time, or just feel
uncomfortable about lending, then just say no. Sometimes borrowers can
put you under so much pressure that you succumb. It’s far easier to say
no from the start than to have to hound your friend for the money.
GIVE instead
Borrowing and lending are business
transactions and should generally be treated as such. If this all
sounds too formal or too business like for you, then its best to just
give instead. That way, you are offering only what you can afford, and
have no reason for resentment. If you consider the loan to be a gift,
if it gets paid back, then it’s a pleasant surprise; if it doesn’t, you
weren’t expecting it back anyway.
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