Loan money to family and friends? Read this first | Advice

Search “free promissory note” online to find a form you can simply print out and fill in the blanks. Find Word and PDF templates; promissory note templates are a good option.

Reasonable interest. It’s good for you and the borrower that you charge a fair interest rate. If your borrower balks at being charged interest, blame the IRS, which says you, the lender, will be assumed to have earned an interest rate at least as high as the applicable federal IRS rate, which is fixed monthly.

As of this writing, this rate is 1.30% and changes monthly.

Require guarantees. You can require your borrower to “secure” this loan by pledging something of value they own that has a perceived value to the borrower of at least the loan amount. It could be a Nintendo Switch, a watch, a phone, or a TV. Either way, take ownership. Hold it instead of refund.

Include the fact of this security in your documentation with a clear statement that once the loan is repaid, the security reverts to the borrower. And if the borrower defaults, the collateral becomes yours at your discretion, to be liquidated for repayment of the loan.

Formal repayment plan. Because you don’t want to become a debt collector and hunter of deadbeats, agree a repayment plan in advance before releasing the money to your borrower. Do it while everyone is friendly and concerned about making it work. Let the borrower come up with a plan you can sign up for.

Troy M. Hoffman