{"id":2212,"date":"2023-05-26T17:17:51","date_gmt":"2023-05-26T21:17:51","guid":{"rendered":"http:\/\/blog.tarleyrobinson.com\/?p=2212"},"modified":"2023-05-26T17:17:51","modified_gmt":"2023-05-26T21:17:51","slug":"preserve-friendships-borrowing-lending-friends-family-document-transactions","status":"publish","type":"post","link":"https:\/\/blog.tarleyrobinson.com\/?p=2212","title":{"rendered":"Preserve your friendships when borrowing or lending with friends or family – Document your transactions"},"content":{"rendered":"

Many small businesses rely upon loans from friends and family for startup funds, for business expansions, or to support existing operations. Many times, these loans are made upon an oral agreement. As we have written previously, although oral agreements can be enforceable<\/a>, without a writing, the terms of the agreements can be difficult to prove. In this blog post, we will describe other problems with informal lending transactions between family and friends.<\/p>\n

\"contract,<\/a><\/p>\n

In a study entitled “Lenders’ Blind Trust and Borrowers’ Blind Spots: A Descriptive Investigation of Personal Loans,”<\/a> researchers outlined many of the difficulties of maintaining a lender-borrower relationship \u00a0between friends and family. In many “informal” lending relationships, the borrowers and the lenders remember the transactions differently. This “self-serving bias” can lead to problems. For example, borrowers may believe that the “loan” was a “gift,” or although agreeing that the transaction was a “loan,” may believe they paid off the loan. On the other hand, the lenders may feel angry when the “loan” is not repaid, especially when the borrower never raises the issue of repayment.<\/p>\n

The study documented these\u00a0differences between borrowers and lenders<\/a>:<\/p>\n

\"\"\u00a0Many borrowers thought the idea for the loan originated with the lender, not themselves, although the lenders thought otherwise;<\/p>\n

\"\"\u00a0Borrowers reported far fewer delinquent loans than lenders;<\/p>\n

\"\"\u00a0Borrowers were fairly confident they would eventually repay the loan, but lenders thought even one missed payment probably meant the loan would never be paid off;<\/p>\n

\"\"\u00a0Delinquent borrowers “are much more likely to report feeling guilty, and also strangely, relieved and happy. Lenders associated with delinquent loans, in contrast, are much more likely to report feeling angry.”<\/p>\n

Even though banks are flush with cash to lend<\/a>, you may not qualify for a loan, or the bank’s terms may be too onerous. Consequently, family and friends are natural sources of funds for startup funds or for operating capital. However, as the proverb says<\/a>,”Before borrowing money from a friend, decide which you need most.”\u00a0Therefore, if you must borrow from friends or family, it is a small price to pay to perserve your personal relationships to have\u00a0your business attorney<\/a>\u00a0draft the appropriate loan documents, including a promissory note, so that everybody knows the expectations of the transaction. Taking this step at a relatively small price can save your friendships.<\/p>\n

Tarley Robinson, PLC, \u00a0Williamsburg, VA<\/span><\/h3>\n

Attorneys and Counsellors at Law<\/span><\/h3>\n
<\/div>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Many small businesses rely upon loans from friends and family for startup funds, for business expansions, or to support existing operations. Many times, these loans are made upon an oral agreement. As we have written previously, although oral agreements can be enforceable, without a writing, the terms of the agreements can be difficult to prove. In this blog post, we will describe other problems with informal lending transactions between family and friends.<\/p>\n

In a study entitled “Lenders’ Blind Trust and Borrowers’ Blind Spots: A Descriptive Investigation of Personal Loans,” researchers outlined many of the difficulties of maintaining a lender-borrower relationship between friends and family. In many “informal” lending relationships, the borrowers and the lenders remember the transactions differently. This “self-serving bias” can lead to problems. For example, borrowers may believe that the “loan” was a “gift,” or although agreeing that the transaction was a “loan,” may believe they paid off the loan. On the other hand, the lenders may feel angry when the “loan” is not repaid, especially when the borrower never raises the issue of repayment. <\/p>\n","protected":false},"author":5,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[336,6,1],"tags":[14,151,219,189,16],"_links":{"self":[{"href":"https:\/\/blog.tarleyrobinson.com\/index.php?rest_route=\/wp\/v2\/posts\/2212"}],"collection":[{"href":"https:\/\/blog.tarleyrobinson.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.tarleyrobinson.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.tarleyrobinson.com\/index.php?rest_route=\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.tarleyrobinson.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=2212"}],"version-history":[{"count":4,"href":"https:\/\/blog.tarleyrobinson.com\/index.php?rest_route=\/wp\/v2\/posts\/2212\/revisions"}],"predecessor-version":[{"id":2217,"href":"https:\/\/blog.tarleyrobinson.com\/index.php?rest_route=\/wp\/v2\/posts\/2212\/revisions\/2217"}],"wp:attachment":[{"href":"https:\/\/blog.tarleyrobinson.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=2212"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.tarleyrobinson.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=2212"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.tarleyrobinson.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=2212"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}