This is part 2 of when to say YES or NO when handling friends who borrow money.
To read the previous article please click friends & money part 1
You can prepare yourself for the worst case scenario first, by picturing what would happen if your friend doesn’t pay you back? How will it affect your relationship? What if he comes back to you to borrow more money which you could no longer afford to give, are you prepared to say “no” this time?
If you can't make up your mind from the previous questions , then I suggest that you reconsider your decision and perhaps try to help your friend through another way. It may also help to be honest and open with your friend and ask how exactly is he planning to pay you back. Where will he get the money? Will he be paying through installment or as lump sum? What will be the payment schedule?
When the amount is considerably big, it’s best to get everything in writing. More than often memory loss creeps into Kenyans whenever they borrow money. I don't think it's rude to ask for a collateral or ask them for post-dated bills, cheques. Specially if this is a business transaction, it is necessary to get all legal documents ready to avoid future conflicts in the partnership. In the end, when everything goes well, you can use that contract as a testament to your genuine friendship.
If he asks money for a start-up or to expand a business, then you would have to clarify if he’s asking you for a loan or he’s inviting you to be an investor. As a loaner, you’re expected to be paid back but as an investor, you’ll be sharing in the company’s profits instead. As an investor, it calls for more extensive evaluation.
If he has a valid and acceptable reasons for borrowing money, then your next judgement call is to determine if you can afford it or not. The only way to make this decision is to have a working budget for your expenses. This is why personal financial planning is important. Have you ever, asked a business tycoon 'Sonko' as they are called here in Kenya, for a soft loan? He always says something like ' wacha niangalie vitabu' meaning let me consult my books.
If you don’t have a monthly budget for your expenses. Then I suggest that you make one before you lend out your money. By having a clear picture of your own financial situation, you do not risk having money problems of your own in the end. It’s best to take out this expense from your entertainment budget.
If your budget says otherwise, make your friend understand your situation and explain to him your own financial goals. Be calm, diplomatic and most importantly, offer to help in another way such as teaching him how to properly track his expenses so he won’t run out of money regularly. Try and suggest alternative sources of income to augment your and his earnings.
It takes much character to resist the temptation of giving in to unreasonable monetary requests from friends. Be firm with your decision and believe that a true friend will not hold it against you if you choose to keep your money to yourself.