How to Respond When a Friend Asks for a Loan

When friends call asking for money, you should weigh each situation on its merits before answering. Follow these tips when responding to a friend's loan request.

Difficulty: Moderate

Instructions

1. Ask yourself if your friend can be trusted. If she repeatedly asks for money, you may want to cut her off now. Find out what the money is going to be used for, and determine whether it will be used for something that you feel is worthwhile.

2. Determine whether you can afford to give a loan. Never loan money that you need for your family. Make sure that you have enough money in the bank to cover any financial burdens that you could possibly encounter.

3. Say "no" if you can't give your friend the money. Always be polite and honest. Explain why you cannot make the loan.

4. Offer to find other help. Just because you can't loan your friend money, doesn't mean you can't help him find the money somewhere else. Research on how to apply for government loans and grants.

5. Get it in writing. Once you've discussed all the particulars with your friend, create a contract outlining the exact amount of the loan, interest rate and repayment schedule. Both you and your friend must sign the contract. Make two copies--one for his records and one for your own. Keep track of the amounts and dates that money is repaid.

Tips & Warnings

• If the loan you give is more than $10,000, you must charge interest in accordance to federal law. If you charge less interest than the national minimum, you'll have to pay a gift tax on the difference.