My father taught me few golden rules when it comes to lending money to friends or relative, and they are very useful and effective tips !
Here are the lessons :
1) only lend amount that is immaterial to you that you must treat that it’s “gone”. It should bother your financial health and mustn’t burden you in any way.
2) with 1) in mind, never ask back the money, give as much time as possible to your friends and family to repay you. If they forgotten about it, you should forget about it too. Money should not be a reason to lose or sour friendship or family ties.
3) if the amount requested is too much and became material to you, or became burdensome, say NO at all cost. It’s better to be honest upfront even if it causes discomfort, than making the debt an ever lasting reason to further sour your friendship or family ties in long run while you chase for debt.
4) when a friend or family needed money for important things like to pay for medical bill or buy food because of poverty, and the borrower is close enough to warrant you to spend more than what is immaterial to assist, do not lend the money. Spare some time, drive your friend or relative to the hospital or supermarket, and pay yourself. If you can’t do that, say “NO” too.
5) a friend whom you lend money to in the past, if he comes back to borrow more money from you before repaying the first debt, do not lend it to him. Say NO. You are not helping him. You are just making him taking you for granted. Again, unless he really needs it for important stuffs, offer to pay for the transaction yourself without giving him the money.
6) if your friend is a gambler, and is borrowing money to repay his gambling debt, say NO. Same applies to anyone who is borrowing money on behalf of his or her spouse, relatives etc. This is not helping. He should learn how to pay his own debt, even if it means being declared bankrupt. There are many bankrupts in this world, and they survived becoming better person after that. If it’s along that he is debted to, assist him to make police report and leave it as that.
7) above doesn’t apply when it comes to people you love very much. You must do all you can to help your parents, spouse, siblings even if it means you will be broke by lending money to them. But being a responsible family member of friend, you mustn’t stop at lending money to them. You have the duty and responsibility to help them to cope and resolve their issue in totality. Check them in a rehab, counselling, register them to AKPK, etc.
8) if a friend or family member borrow from you to start a business, advice them to take a bank loan, or demand for sufficient equity / stake in the business. Why so? First, banks are there to lend money to people who wants to start a business. If he couldnt secure a loan, it simply means he couldnt pass the diligent test on his business’ viability. The bank deems his business as being too risky and not worthy of an investment. So by borrowing money from you, he is passing the risks to you. Why should a friend, pass his business risk to you without offering you a fair share of return? If he is not being fair to you, he is taking you for granted. If you are indeed being offered stake or equity of the business, threat this as a business partnership than a lending transaction : do all your due diligence, study his business model, give him your views, and take it as a form of investment rather than mere lending of money.
These lessons have helped me to date. I have not sour any friendship because of money, and I never ask back what I have lend out.