Borrowing Money from Your Friends

November 2, 2009

If you've ever been on the other side of this equation then you know how that first conversation goes. Maybe you've even been the one to offer the cash to your reluctant friend who's in desperate need of rent money. The transaction occurs with no end game in sight. You know your friend is in a free fall and all the good intentions to repay the money some time in the near future will turn into a game of "Name That Year".

Be prepared from the outset to convert that loan into a gift. If you can afford to be so generous make it a gift from the very beginning and tell your friend that when she gets back on her feet she can repay the favor by helping out another friend in need. As for the friend, borrowing money may be the last thing you want to do but if you need to scroll through your address book try to find the friend who meets the following criteria: 1) he can afford to gift you the money; 2) he doesn't have a watchful partner who would balk at the money giving; 3) he'll allow you to reciprocate the favor with your kindness, your time and your help with his kids, dogs, turtles — whatever.

As all the diehard lenders know, lending money to relatives for business ventures is even more of a challenge. Ultimately, whatever the venture is, it's a risk. If you have the time, patience, pockets and stomach to withstand the ups and downs of your investment and you can remain somewhat detached from the outcome, go for it. No private placement memorandum, business plan or prospectus alleging modest or best case scenarios in specified timeframes will alleviate your nerves when things don't go according to the plan. In the end money becomes emotional.

Warning: Lending money may cause shortness of breath, nausea, dizziness, disorientation, irritable bowel, fever and flulike symptoms.

If you suffer from high anxiety, heart problems or palpitations, make sure your entrepreneurial relative makes you take a physical before he takes your cash.

For the entrepreneurial borrower in question the sky is the limit if your venture is a hit. But nothing is a surefire hit and you can't purport it to be. The best lenders are the ones who can afford to lose every single penny. Regardless of the market conditions, your curriculum vita, your expertise, your brilliance or your loyal team of participants, there's always the X factor. And you'd need a psychic to deliver all the details about the future — and you know how sketchy that can be.

Co-dependent boyfriends and girlfriends may readily opt to front you some cash in exchange for the promise of eternal love, but that warm fuzzy flame can turn into a blow torch when the money you need to repay your paramour gets held up by Peter who didn't get enough money from Paul. Before going the kiss-and-borrow route consider finding another cash source altogether, even if the sky is falling. You wouldn't want the sky to fall and have your relationship crash and burn all at the same time.

If you're in the position to help the needy, lending cash to a friend is a great reminder that it takes a village to raise an adult. If you're on the other side of that coin, you get the great gift of humility and the comfort of knowing you've got friends and relatives who believe in the power of one love and one wallet. NewsSip

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