Author Topic: Personal Lending Legalities  (Read 346 times)

cowpuncher10

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Personal Lending Legalities
« on: February 24, 2020, 07:42:19 AM »
Howdy!

I am curious as to what the legalities are for private money lending. I have an opportunity to invest a small amount of money. $500, and work my way up in value if I so choose in the future. I understand the inherent risks associated with private/personal lending but the individual who I am having these discussions I have been working with, daily, for over 5 years and spend several evenings with every month including play dates with the kids.

Questions
What are the legalities of doing a private loan?
Am I required to file any paperwork?
File an LLC and get legal representation and insurance?
Am I required to have a written and signed contract?

Thanks!

secondcor521

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Re: Personal Lending Legalities
« Reply #1 on: February 24, 2020, 08:03:08 AM »
1.  No legalities except to avoid your state usury laws if they exist.
2.  No.
3.  Not required.  Probably unadvisable for a $500 loan.  What do you think your liability would be?  What kind of insurance are you considering?
4.  Not required, but a good idea so the borrower doesn't retroactively claim it was a gift.

What will you do when they don't pay you back?  If there is a friendship involved, are you willing to see that friendship damaged or lost over the loan?

cowpuncher10

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Re: Personal Lending Legalities
« Reply #2 on: February 24, 2020, 08:18:33 AM »
1.  No legalities except to avoid your state usury laws if they exist.
2.  No.
3.  Not required.  Probably unadvisable for a $500 loan.  What do you think your liability would be?  What kind of insurance are you considering?
4.  Not required, but a good idea so the borrower doesn't retroactively claim it was a gift.

What will you do when they don't pay you back?  If there is a friendship involved, are you willing to see that friendship damaged or lost over the loan?

Thanks for the reply! Regarding 3 it was more of a "Am I required by state to have this?" Thanks for #4 makes sense. If they don't pay me back then that's fine, I can afford to lose the money. 401k, IRA, HSA's are all going to be maxed as they have been for the past several years. Just looking to see if this is an avenue worth pursuing with this individual instead of dumping into a savings/checking account, CD, or traditional brokerage account. I would never loan an amount that would financially hamper the family or retirement goals.