How to Borrow Money From Friends

Who do you turn to when you're strapped for cash? It's normal to ask a friend for help. But, mixing finances and friendship can foil a friendship if you aren't sure you can pay back what you borrow. To ensure you and your friend are on the same page you need to create a paper trail that explains what you're borrowing, for how long and how you will pay it back.

Difficulty:

 

Moderately Easy

Instructions

Things You'll Need

• Written agreement of terms
• Timeline for payback
• Interest rate
• Personalized letter of explanation
• Promissory note

Suggest Edits

1. • 1
     Tell your friends exactly why you need to borrow money. You can draft a letter explaining how the money will be used and what you intend to get out of the temporary loan. This may help ease your friends' concerns about lending money to you.
   • 2
     Ask for an exact amount of money from your friends without taking additional funds. Your friends likely do not have the same financial holdings as a bank that can offer loans to cover emergency contingencies. Determine the right amount to borrow and indicate how you arrived at the figure.
   • 3
     Make every effort to pay more than your monthly payment when borrowing money from your friends. You can help your friends with their financial situations while clearing off your debt by getting ahead of your repayment schedule.
   • 4
     Negotiate an interest rate that is amenable to you and your friends. Many lending arrangements between friends can be uncomfortable because neither side wants to ask for too much. You can make a loan worth your friend's time by adding competitive interest rates into the agreement.
   • 5
     Write out a promissory note with the assistance of a lawyer or other witness. A promissory note establishes the terms of the loan and allows action in a court of law if the provisions fall within state contract laws.
   • 6
     Provide friends who lend you money for a business with services or products from that business. You can use discounted sales prices, rented equipment and other benefits to encourage your friends to invest in the long-term health of your business.

     
     

     Tips & Warnings

     • Split borrowing requests among several friends to ease the financial burden on your social network. The temptation to ask for a large loan from a friend who is willing to lend you the money may lead to resentment. You can create a comfortable environment by bringing friends together to discuss the situation instead of isolating each friend.
     • Combine a loan from your friends with other funding sources to create a dynamic portfolio. You should not draw too heavily on one source to avoid excessive interest rates on high principal.

Posted in: Personal Finance