Have you ever been sitting with a family member and you were driving down the road, you start chatting about this week’s lotto 649 Jackpot, and how you would spend the millions if you won? Somewhere in the fantasy, the plot gets lost and instead of discussing the great things you could do, it leads to an argument about who owes who and why certain people should get more money, and why you should split it or spread it evenly even though it’s your ticket. All of this worry over a ticket that hasn’t even won yet.

The reason I discuss this, is that family is complicated and comes with history and hindsight. The discussion of money whether it is a fantasy $1 million or a loan for $10,000 comes with the expectations of how things should be according to your relationship. Sometimes these predispositions set the stage for future difficulties getting a loan paid back or getting a loan from a family member. It is often the unspoken that comes out around issues of money, especially if expectations have not been set. 

This is what we call a personal level relationship, but sometimes a personal level comes with all of the personal issues as well. Therefore, when getting a loan from friends and family, we suggest that you get the expectations out and make them clear. If it is for a small business you are starting, be clear that it is for a loan, short-term or long-term, or whether it is an investment/loan where they get a share in the business (active or inactive), or a mixture. This needs to be clear in the discussion, and leave no spoken word unwritten and or no unspoken promises not dealt with. Explain that money for small businesses is risk capital or love money, that the capital is literally the most risky part of the investment, but outline how the funds are going to be used so they feel comfortable with it. The golden rule of financing from friends and family is not to take more than they can afford to lose, especially if they are taking a loan to give money to you, be aware that this is NOT smart money and there could be regrets in the future if you are unable to cover at least the minimum monthly payments for their personal finances.

It was just a few nights ago I was at a BBQ and a family of 6 was sitting around having a glass of wine discussing one of the Grandchildren’s opportunities to purchase the restaurant he managed. The amount he needed was $200,000. The grandparents said they were in for $100,000, the one Aunt said she was in for $50,000 she would take out via her mortgage against her home, and that leaves $50,000 more he could finance with the Bank given that he is taking over with $150,000 in cash. While sitting in on the conversation, I was asked what I think. Firstly, the man’s experience in the restaurant industry has been impressive, the business had just made its first profits, but there needed to be an unbiased third party to analyse the business and accounts. The loans being made would need to be documented, and if the assets are unencumbered, I suggested encumbering them with the family loans so at least if a creditor were to come in the future, the assets of the business would be secured by those who love him. If the choice was to go with an unsecured loan, at least have a payment schedule in place and have the loan being paid down on month to month with balloon payments at year ends based on the success of the business. The one Aunt with $50,000 being taken from her home mortgage, I suggested she reconsider her financials and how that would affect her monthly payments. From the brief discussion we had, this was more money than she could afford to lose. I discussed with them the expectations, the Grandparents where happy to see the initiative, the Aunt wanted to be actively involved. How much of a reality is it all, it is a BBQ conversation, but that is often where the money is raised and the commitments are made. Make sure those verbal discussions get put into writing, and continue to put the discussions in writing, so that when the loan agreements are drafted and the discussions are there for back-up of the initial promises and expectations, good notes and good agreements make life easier for all. Treat these discussions like a Board Meeting, take minutes or notes, and file them aside. It is so important for clear communications. If it’s not written down, the conversation never existed.

That was just an example of some advice I had to give on the spot. There are more pitfalls that family has to consider, such as whether the person getting the funds is married or the chance they will. What clauses could be put in place to protect the investment? Are there other partners, should they be party to the loan, if they are spending/investing the funds on the family member’s part. If there is a partner in a business, get them on the loan too. I have seen many occasions where family lends capital to a grandchild or son/daughter, and the partner spends the funds with no consequence. If a business partner is not willing to go on the line for a family loan, one should reconsider their partners! Relationships begin as they will end, and the family will be treated with the last priority if they don’t get a commitment from both/all parties. That goes the same way for husband/wife loans; make sure as family both sign-on. There are volumes of case law that support this advice… always get both to sign.

When approaching friends and family for a loan:

1. They are more flexible
2. They may offer loans without security
3. They may lend interest free or low interest rate
4. They may allow a longer period of time
5. They are flexible on late payments
6. They already know who you are, and have faith in what they know

Remember from the advice and example given above about my friends at the BBQ and what I said to them:

• Write down the terms discussed and all prior meetings where money was involved in the discussion pertaining to a loan or investment
• Family will offer more than they can afford, don’t take it because you need it, be conscious of their situation as well. If they are borrowing to give you capital, be conscious of the payments they need to make at a minimum
• They will likely want to get involved with the business, make sure this is appropriate and welcome
• If there are partners or spouses, make sure it’s in writing with all parties not just the family member
• Define the expectations, make them clear, get it in writing and discuss and approve the accuracy
• Get the payment terms down, define the returns and timeframe, the use of funds, and overall involvement… then www.documentyourloan.com or www.kasu.ca can put the formal document together! This is a great service for getting it in writing.
• When it comes time to make an agreement at www.documentyourloan.com be prepared with the parties names to the loan, timing expected, interest rate, amount being lent. The software will calculate the payment schedule, including dates, amounts, interest, etc. You may want an addendum for how disputes and default will be solved.

To reduce the cost of a lawyer, I suggest using www.documentyourloan.com or www.kasu.ca and going over the agreement in place with a Lawyer who may decide to witness the document, advice, or add to it. In any event, it saves time and money.

If you do get the loan from www.kasu.ca and want to automate the payment from your account, you may want to discuss with your bank about filling out a direct debit form based on the payment schedule generated so that you can add an additional layer of security to the lender that they will be paid, and paid on time. Automation allows both you and the lender to sit back and relax.

I know what we discussed was friends and family loans and how it applies to small businesses and entrepreneurs, but other places and times you may ask for a friend and family loan includes:

• Consolidate debt
• Buy a new car, home, etc
• Capital uses such as equipment
• Home improvements
• Weddings, Funerals, Health Expenses, etc.

In some of our other articles, we discuss the matter of debt consolidation at http://www.documentyourloan.net/2009/11/debt-consolidation/ and http://www.documentyourloan.net/2009/11/consciously-get-out-of-debt-part-6-dealing-with-creditors-debt-collectors-consolidating-debts-and-paying-them-down/.

When you have great friends and family, you shouldn’t have to struggle through all the hoops of the old way of borrowing. Have a little ingenuity and faith in yourself to convince the people who do know and love you before you go to those who don’t.

Also if you are going to borrow money just think to yourself… www.DocumentYourLoan.com!

There may be many good tax reasons why you should make a gift a non-interest barring loan, as the write-off of the loan will give you a tax break where a gift may be taxed income. I do suggest discussing your loan agreements with a tax consultant.

If you need guidance or direction, email our consultants at info@kasu.ca. We would be happy to discuss your thoughts.

Bad Credit Loan is a loan which is generally speaking offered by more predatory lending practices or companies that make profits at the expense of your financial stability. Often Bad Credit Loan and Debt Consolidation companies help pay the unsecured debts that you are struggling with to pay on time. With the current state of the economy, bad credit loans and debt consolidation provide a method of pulling an unmanageable burden into a single payment scheme and allow the rebuilding of one’s credit. Likely you have been turned down for loans and credit. Some of these quick loan applications can come by way of securing it against your assets or house, some security is expected. These often have communities of mortgage investors. In other cases, Bad Credit Loan services might offer the loan online, an online bad credit loan, which usually gives overnight service. They are often open around the clock, but the % on the money is as high as it could legally be within your Country of origin.

Some suggest that you can build with bad credit loans. Paying back the loans can be registered and if the loans are used to pay off capital before going into default. Due to the high interest however, I am sceptical of bad credit loans. I would sooner use my ingenuity and seek capital from friends and family with similar terms. Most people don’t think about the fact that friends and family are a healthy alternative, especially if you are willing to give them the same rate and similar payment terms. I highly suggest trying to convince yourself to use a loan document such as those at www.documentyourloan.com or www.kasu.ca, and find the money from friends and family under the same terms. Let someone you love make the profits.

Bad credit loans and debt consolidation plans require that all payments are made on time, and this is the basis for being given the credit and being able to keep and build upon your credit. There are many predatory bad credit loan lenders. I once had a friend who was one such loan shark as we would call them for the rate and ethics of convincing people to put their financial future in their burden laden hands. With the crash of the economy, I had a discussion with him recently and he said he is no longer a Bad Credit Loan company, he is a debt collector. You don’t need another debt collector, especially one that can charge up to 60% interest legally in Canada. At least if your friends and family gave you the money, 20-40% interest would look amazing for them and a default on a payment will be treated much lighter.

A little ingenuity will go a long way when you have dealt with a bankruptcy, bills in arrears, defaulted loans, and job instability. This is the pond of despond of which the Bad Credit Loans often dwell, but look for the Hand of Help among your friends and family. Use the Universe, a Loan Document, and a story and method of repayment to try and raise the money, and yourself out of the situation. Keep making payments to whomever you borrow from, as the Friend Rating is often higher than the credit rating in priority as you will have to go back to them more than the bank.

It is vital either way, if you are going to sign a loan with someone, that you know the terms and have had an opinion on those terms. Many bad credit loan providers try to put terms by their clients without the client even knowing the full extent of the loan. They are required to disclose it, but disclosure is a tricky word, as tricky as the backhanded duplicated cross referencing self cancelling over charging multi default laden bad credit loan you can get from someone who claims to be disclosing. In actual fact they are, but you would likely not understand it. Use a loan from www.documentyourloan.com, understand the terms, make fair agreements with friends and family, and don’t fall into the clutches of bad credit loans. If you have to go for a bad credit loan then make sure you know exactly what you are signing.

You know my thoughts on the matter, www.documentyourloan.com

An unsecured loan is the opposite of a secured loan as it is not backed by an asset or collateral, it is a loan of which there is no backing accept for the legal ramifications of possibly someone suing for payment.

As an unsecured loan for a company, I have taken unsecured loans from friends and investors for higher interest rates in order not to encumber the assets in the event I had to take another loan in the future. The other loan would likely help consolidate the loans but would be secured. It also gave me the flexibility to sell assets within the company for additional cash flow. As an entrepreneur, unsecured loans and unsecured loan documents became very important parts of a the working company. The need for loan documents happened at least once a quarter as we shuffled one loan for another or repaid and borrow again. The loan documents at www.kasu.ca are sufficient for making the Loan Document you would need in these matters.

For unsecured loans with friends and family, I have borrowed money with the promise I would pay them back. The nice part of the unsecured loan of course is that you have flexibility with your assets and cash flow. Secured loans often have many conditions on what you can’t and cannot do making your worth less manageable.

Unsecured loans from Banks and Credit Card or finance companies often is also based upon credit ratings. In this case, the loan is much more difficult to get as it is based solely on credit rating, which factors in the borrowers income or cashflow.

Obviously if your friend is lending you money it is not based on credit score, its about your friendship. But I highly recommend documenting the loan at www.documentyourloan.com for showing your payment schedule and keeping a good track record with friends and family. Your friend rating is often just as important as the credit rating, because you will likely go back to your friends more often than you will your bank. The only thing at stake is your friendship, but it is also your cashflow. Some people call this friends and family loans, some call it Love Money, some call it goodwill lending, its all similar in concept to one common definition, they are all unsecured loans.

Unsecured loans with financial institutions are generally personal unsecured loans which the individual has made a personal pledge to repay, a business unsecured loan or unsecured business loan, of which the company makes an obligation to pay similar to the example above, or there is an unsecured business loan with a personal guarantee to pay. All three of these types of loans I have personally done within the last year! How is that for a need for good loan documentation? It is actually why I came up with the idea of this blog and the company document creator www.documentyourloan.com as it automates a process I have to repeat often.

I hope you enjoyed this definition of an unsecured loan and blog.

A Secured Loan, which is just that, when an asset is used to secure the loan such as a house, car, stock, or company, and in the event the borrower cannot pay the loan, the sale of the asset is forced, acquired, or foreclosed. Thus, the collateral secures the debt of the lender of the loan, and the loan document would specifically define how such default would transpire to acquire the asset in the event the funds are unpaid or payments are missed. In many events and cases, I have used stock loan agreements, which is a loan secured by stock in a company. There were two such events that triggered, one was that I had to make payments to the lender, and if a payment was missed the stock could be sold to repay the loan immediately, or in other events, the stock could be sold by the lender if the price of the stock fell below a certain price over a 20 day consecutive period. Either way the terms where put in place and the loan was secured by the asset. The most common is with the home, such as, a home loan line of credit, where one gets lower interest rates and higher lines of credit for allowing a mortgage to be registered against the home for the value of the line of credit. From the creditor’s perspective this is a category of debt in which a lender has been granted a portion of the bundle of rights to specified property. The opposite of secured debt/loan is unsecured debt, which is not connected to any specific piece of property and instead the creditor may satisfy the debt against the borrower rather than just the borrower’s collateral. In the case of stock loans, often if the principal is not paid by the sale of the assets, the stock in this case, the remaining balance could possibly be an unsecured loan outstanding against the debtor.

At this point in time, the lender would need an unsecured loan document to document your loan at www.documentyourloan.com.