When the loan was originally applied for and you agreed to the terms, you knew the situation could be negative. Even if you have taken your friend or family member to court for their credit, you still can`t get everything that was originally loaned. If there is no written agreement on the loan, you cannot get any of the loans. You must be aware before accepting the loan. There is always a risk that the money will never come back. Like traditional private lenders and banks, they must also accept that no matter how much they seek and try to get their money back. Often, friends can do business because they think no formal documentation is needed; After all, you`re a friend! However, in order to relieve the potential for miscommunication or hurt feelings, on the street, with business plans and contracts in place is always advised. When a friend agrees to provide goods, services or money to another friend, the payment contract is an indispensable part of the transaction. There are free models for loan contracts between friends and family. In addition, it is preferable to have signed the letter to a notary, although it may require a small amount in most cases. If this is not possible, at least have the letter signed to the witnesses.
It is also important that both parties have a copy of the agreement. Whenever two friends or close family members have to borrow or do business together, there is always a risk to the relationship. It is understandable that you want to help them because you take care of them, if it is for something like a loan for medical bills, when your heart naturally says to help. But now you`re in a situation. If you find that you have to track down your friend every month to get a payment, and they are not as sincere as you originally thought, the relationship may be damaged. You start to take a different perspective from that person from a business point of view. This can cause considerable damage to a relationship. This facilitates the defence of the agreement in court and makes it less likely that the document will be manipulated at a later date. Each contracting party should receive a full copy of its files. In addition, the agreement can determine the type of penalty if the money is not repaid as agreed. If the lender wants to separate the loan from a gift, there is a minimum interest rate. This minimum should be charged to allow the IRS to distinguish between a gift and a loan.
Your family member or friend may choose to calculate at least this minimum rate. This generally ensures that the loan is considered a loan. A simple business contract between friends protects the relationship by separating business and friendship.3 min read agreements and contracts are not the same things.