(Newswire.net — February 17, 2018) — Any wise lender understands how important it is to document the entire loan process. This doesn’t simply entail preparing the loan application form. The loan agreement must be thoroughly ironed out, ensuring that it contains accurate information with appropriate language to make it easier to collect payments particularly if the borrower defaults. If you have borrowed money from a commercial lender in the past, then you should be well aware of the different loan documents you need to submit to get approved.
The Lender Seeks to Minimize Risks
On the part of the borrower, it can be annoying to go through a lot of paperwork before you can get the money. But you should remember that the loan documents are a way for the lender to keep risks to a minimum. For instance, the loan application form typically includes an asset section which tells a lot about the credit-worthiness of the borrower. It also helps the lender determine where to go in case of default other than chasing the borrower.
Documenting Loans to Family and Friends
Private loans offer a cheaper and more convenient solution compared to commercial lenders, but mixing your finances with personal relationships comes with its own risks as well. A loan between family and friends can introduce conflicts which could damage the relationship for good, especially if the borrower is unable to pay off the loan in full.
This is precisely the reason why you should put the terms of the loan in writing, whether you’re the borrower or the lender. There’s no need to hire a lawyer for this. Net Lawman provides several template agreements specifically for loans between friends and family members. You can set up a loan agreement that isn’t too formal that it creates a discord in the relationship, but there are also unsecured loan agreements which prove to be the better option if the borrower doesn’t offer any collateral or security.
Never Settle for a Handshake
Many people decide to trust a handshake, thinking that it wouldn’t do any harm in the future simply because they are working with a friend or relative. But once something goes wrong, you can’t use that handshake for pursuing legal action. Before you hand over or receive the money, it’s paramount that you go through the loan documentation process so both sides know full well the ramifications of the loan.
After you’re done with the loan agreement, creating a simple spreadsheet should be your next step to ensure that repayments are made on time and the other terms are met. This spreadsheet should be shared between the lender and the borrower, essentially serving as a calendar that both parties stick to until the full repayment of the loan.
Documenting loans should be considered a must, even if you’re not working with a commercial lender. Keep in mind that when it comes to private loans, you should look beyond the business side of things and consider your personal relationship as well. You’d always want to avoid making money the reason for ending a longstanding relationship.