Helping a friend or family member in need is a good thing to do.  However,  doing this through a loan often leads to hatred and misunderstanding when the borrower is unable or unwilling to repay. Here is what to do to avoid regretting giving a loan to your friend or family member.

1. Assess the Borrower – before giving a loan to someone assess the borrower carefully.  Assess their spending habits, honesty and capacity to repay. Don’t give loans blindly unless you are willing to forfeit that money and not get it back.

2. Tag the Loan to Collateral – if the loan is for a substantial amount,  identify one of the assets owned by the borrower and use it as security for the loan. A simple thing like a functioning TV, Fridge or Car can be good collateral for the loan.  Get details of the item including the product details and proof that it is owned by the borrower (receipts). Make sure you get a copy of the receipt. Make sure to have this registered under the Movable Properties Register.

3. Get it in Writing  – the biggest mistake people make when lending is that they forget to put the loan in writing. Have a Lawyer prepare for you a simple loan agreement based on your circumstances and ensure both you and the borrower sign it in the presence of a witness. This will help you enforce the loan if the borrower refuses to pay within the agreed period. With an agreement in place you can sell the borrowers assets or attach their salary through the Court Process and get your money back if they refuse to pay.

4. Determine Interest Rates – Depending on the type of loan being offered,  determine whether you will charge Interest and consider the Tax implications that come with that. You can consult a Tax Expert on this.

5. Determine the Repayment Period – have a repayment period that works within your needs.

6 EXTRA TIP – if the borrower refuses to pay and it is a small loan,  it will take around 3-4 months to get your money back through the Court Process. Please consider that when giving a loan.

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Published by masibolaw

We help ambitious entrepreneurs to overcome legal and regulatory obstacles while growing their businesses.

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