Lending Money to Friends

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April 29th, 2008 0 comments

So, you’re the big-shot (or medium-shot) college entrepreneur. Your friends notice your success and suddenly… they want to borrow money from you. What do you do?

Let’s get this straight at the onset. First, the money you lend to anybody should always be disposable income; something you’d likely spend on something you don’t need. Second, it is always a bad idea to lend money to friends particularly if you can’t pay for your own expenses yourself.

You will find that dealing with friends can be quite difficult and…different, when you know that they owe you money. It changes the relationship. They are indebted to you; not only because you have been kind, but because they have something very concrete, which happens to be yours. The entire situation becomes personal. Remember, money is replaceable. Friends just aren’t. When you do lend, it will also give them the precedent to borrow some more in the future.

As the saying goes, don’t feed the man; teach the man to fish. Do the same for your friends. Seeing as you’re the entrepreneur, you be able to give them advice on how to acquire the money given their own special skills.

Explain to them why you don’t want to lend them the money and offer them help in kind. Have them draw up a financial plan. Show them opportunities to earn their money instead of having it handed over to them. This may include advice from your own experiences or work they are qualified to do in your business.

Lending money to friends can be a hindrance rather than a help. If it happens that they are good with money and they need it for an emergency, be ready to give them the money as a gift, not as a loan. If you do decide to give them a loan, draw up the necessary documents and protect yourself legally, just like with any business transaction.

A friend who would like to borrow from you will likely have borrowed from other people. It can be a surprisingly hard habit to drop. It’s your prerogative to deny them a loan but it is your duty to explain why kindly and concisely.