[READ]: Lending money to friends who hardly pay back

A friend recently complained about a colleague who cried that his wife was going into labour and needed a loan of N100, 000 with a promise to repay by month end. One year down the line and the stories keep changing. In fact, the matter has threatened to ruin their relationship with my friend considering taking the matter to the Human Resource Department.

How often do you find yourself in a position where you lend money to a friend or family member and never get it back? They approach you with cries of desperation and promise to pay back after a specified period only to come up with stories when its time to repay. I get approached too and often fall victim. I have learnt from been a victim and often use this tips to avoid falling again.

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Number one rule is to remember it is easier to borrow and lend than to return after lending

If you have this at the back of your mind all the time then your default response will always be a NO. But there are cases that require compassion too. When they arise your adamant nature will warrant that you reverse the notion by making it difficult to lend and easier to refund after lending.

Create a barrier by introducing third parties to the transaction

People who borrow money or seek your money for investment always come with compelling and convincing tales. They are also very much in a hurry to get the money from you giving you the impression that all hell is about to let loose if you don’t act quickly. The problem however is that, when it comes to getting your money back, that urgency is suddenly transforms to pestering. So for those who are vulnerable to sweet talks, one way of deflecting a suitor is to refer him or her to a third party.  Tell your borrower you understand the situation and want to genuinely help but your lawyer or accountant has to work out the details. That way someone else who is neutral and less biased is suddenly the decision maker in all of this. Whilst in real terms the final decision lies with you, a third party may help you see other risk that you may have missed and also put the borrower under pressure to convince another person.

Ask for a guarantee or security

Just as above, to make it difficult for the suitor/borrower, give them conditions that must be fulfilled before you part with your money. For example, ask for collateral or a guarantee from a recognised cleric. You will be shocked that even a common request for an application letter can often be difficult for borrower to produce which in no small measure sends them away naturally.  A borrower who doesn’t show seriousness to meet this conditions will more often that not break their promise to refund.

Confirm as reasonably as you can proof of need for the money

This can be difficult and not applicable in some cases but if applied it can help avoid any incidence of fraud or default. For example, if they come to you for money to finance a Local Purchase Order, simply ask for a copy of the LPO. If they do not have it, then don’t give and if they do, ensure that it is the borrowers name that is on it and not a third party.

Obtain quasi-security documents like post dated cheques

Most loans to friends and family hardly get covered by collateral. However, you can still request for other documents such as post dated cheques, promissory notes etc. Whilst subordinate to registered collateral such as land, they can be quite useful in terms of settlement. A bounced cheque for example is an offence punishable by law. A serial borrower who issues a dud cheque is therefore at risk of going to jail which serves as a good deterrent.

Keep in touch regularly and pester where necessary

Most of us make the mistake of not keeping in touch with our debtors. Because they are friends we hesitate to bring up the issue even when we are constantly in touch. Finance experts advise that we continue to pester and remind our debtors that they owe us. This creates a lingering sense of responsibility, which can only help you recover your money.

Never lend to a previous defaulter

Once beaten twice shy. Ironically borrowers are often shameless and will not think twice about coming back to you again for another loan. If the borrower is someone who never repays or takes time to, then you may do yourself a lot of good by not lending to them again no matter the circumstance.

If you are soft hearted then only lend what you can afford to let go

Some of us are very vulnerable to bad debts because we are just too compassionate to say no. However, being compassionate does not mean we loose all sense of responsibility. If you are compassionate then just lend what you can afford to let go.

-Ugodre Obi-Chukwuu (ugodre@googlemail.com)

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