How And When To Lend Money to Family And Friends

“Entrepreneur means one willing to accept risk. If you are lending to an entrepreneur, you are an entrepreneur,” he says.

Online Lending Solutions

Bryck recommends using an intermediary like Virgin Money USA. It's documents formalize loans between people who know each other; users can create and customize them outline, says Sarah Deklin, Virgin Money USA Chief Marketing Officer.

“It is certainly not a bad thing to lend money to family and friends, and can be extremely productive for both parties,”  she says, “but what is important is that you talk ahead of time to make sure that everyone is clear on what the expectations are around the terms and the timing and schedule of repayment.”

Parents frequently use this service to lend money to children for college or to buy homes, and friends and colleagues, lend to each other to start or fund businesses. There are requirements on the state level about what consititutes an acceptable interest rate.

On the low end, you need to charge a minimum interest rate or the lender could be subject to a gift tax, and on the high end, you need to charge interest rates under a certain threshold which varies by state, otherwise it could be deemed usury.

“Typically, at the end of the day, what happens is the borrower is getting a lower interest rate than they would get from a traditional lender, and the lender is earning a higher interest rate than they would on a typical fixed investment.”

Fuscaldo could have used Virgin Money US, legalzoom.com or nolo.com to customize or download a promissory note or other legal documents.

Bryck shared that, on a personal note, twice he lent a few thousand dollars to friends, and both times, he wasn’t paid back in what was “loosely defined as a reasonable period of time.”

So, what he wound up doing in each case was going to his friends and basically writing off the loan, saying that their friendship was more important than the money.

The unexpected outcome? Each time, Bryck wound up getting paid back. Once, because his friend felt so shamed by the conversation that he returned the money, and the second because the next day, ironically, his friend won money and gave it to him.

At this point, may be Fuscaldo's best and only hope of getting repaid.