By Maura Attardi
Engagement Insider

Chances are that one of your friends or family members are living paycheck to paycheck.  In fact, nearly half (44 percent) of American consumers have no spare cash and could not cover basic living expenses for 90 days, according to the Corporation for Enterprise Development (CFED), a national nonprofit aimed at  empowers low- and moderate-income households to build and preserve assets. With the cost of traditional borrowing on the rise, don’t be surprised if a friend springs that frightful question: “Can I borrow some money?”

Although borrowing money is usually done with the best intentions, lending money to friends can put you in an unfortunate situation of being left without your money and possibly your relationship. Before agreeing to any loan, try opening the lines of communication.  It may be that your friend would be better off by working with a reputable budget counseling organization.  “Sometimes, saying “no” is the best thing you can do for someone, but  If you are considering lending money to a friend, consider the following advice:

Don’t test your limits.  Only loan money you can afford to lend.  Consider the true impact to your family’s budget and lifestyle if the loan is not repaid, and consider not loaning amounts of money that you cannot afford to do without.

Put it in writing.  If you choose to lend someone money, treat the loan like you would any other business matter.  Discuss the terms of the agreement and put the details in writing.  Be sure to list both parties involved, the interest rate, due dates, payment amounts, and penalty for late or missed payments.  

Know your place.  Do not assume a position of power by expecting special treatment from the borrower.  Also, once the money has been lent, don’t try to control how it is spent.  Being too authoritative could damage your friendship.

Prepare for the worst.  Make sure you are comfortable with attempting to collect if necessary.  Document the date and time of any letters or phone calls, and be sure to make note of all the responses to your attempts.  Your records may be necessary if you plan to take the matter to court, or if you plan to write the debt off as non-business bad debt on your next tax return.  

If you still aren’t sure whether or not you should extend a loan, remember this famous quote from Shakespeare:  “Neither a borrower nor a lender be; For loan oft loses both itself and friend.” 

Source: Money Management International