In this week's Freedom Friday blog and email newsletter, I'm going to follow up on one of our most popular blog articles, and that is a few months ago, I did a blog article and email newsletter on “Let the Lender Beware: Lessons from Lending Money to Family and Friends.” This is a topic where we kind of turn the tables. If you've ever heard the phrase, “Caveat emptor,” it means let the buyer beware. Many people buy something, and then experience buyer's remorse. In fact, many times we might caution the borrower, and it's let the borrower beware. However, in today's Freedom Friday blog and email newsletter, I want to turn the tables around and talk about cautions for anyone who is interested in loaning money, especially if you're loaning money to family and friends, but also if you're just loaning money as a business to a customer, which I hear about also happens on occasion from different clients.
First of all, if you or your business is going to loan money to anyone, especially if it is someone you personally know, like a family member or a friend, you have to operate on the assumption that the borrower is not going to pay you back, and you will likely need to resort to some kind of collection activity to get your money back. Of course, this is why some people have hired me as an attorney, to assist with these kinds of issues. At the beginning, there are some things you can place in the loan agreement that are essential if you want to get your money back. Your loan agreement must be in writing, and you need to include provisions for attorney fees and the costs of collections. In the event you need to sue in order to collect the money you loaned out, you need to have provisions in the loan agreement that provide that the borrower will be responsible for paying your attorney fees and the costs of the lawsuit, and not just paying the money back to you or your small business.
The reason why these provisions are very important is that it may cost you thousands of dollars to pursue a judgment, especially if you're an LLC or business entity, and you can't represent yourself, but you are required to hire an attorney. The more that's required to collect, the more money you're losing, hoping to collect on that judgment. So, you must have a written loan agreement, and its essential to include provisions that if the borrower defaults, then they will be responsible for paying your attorney fees and the costs of the lawsuit, and not just the amount that they owe.
Thinking about starting a small business? Or maybe your small business is having issues with contracts, leases, business partners, collection issues, or experiencing other barriers to growth? Please contact me at [email protected] to schedule a FREE strategy session.
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