Borrowing money from friends can be easier than borrowing from a bank or credit union. If you want to keep a valued friendship, you want to keep your loan as professional as possible. Let your friends know the purpose for asking for a loan--if you are starting a new business, for instance, they need to know their money will be helping you to make money. As you start accruing money from your business, begin making payments to your friends, honoring your written agreement with them.
Step 1
Insist on a written, formal loan agreement when you ask for a loan from your friends. Write up an agreement spelling out the terms, including the interest rate for your loan. Discuss an interest rate ranging between 10 to 15 percent for a personal loan; if your friends try to get you to lower this, let them know this point is not negotiable, according to CNN Money and Michael Eisenberg, a certified public accountant.
Step 2
Learn what the current market rate is for loans so you can agree on the best interest rate. A private loan interest rate can be one to two points higher than the market rate, which benefits your friends, according to Entrepreneur.
Step 3
Choose friends who are willing to wait for you to start repaying your loan, advises Entrepreneur. Ask for a short grace period, enabling you to repay your loan more easily.
Step 4
Put all of the terms of your loan into your loan agreement--if you are unclear about even one point, you run the risk of losing your friendship. Before signing your loan agreement, discuss all the terms with your friends and make sure both you and they understand everything. Ensure that what you verbally discussed is included in your agreement, says CNN Money.
Step 5
Draw up a promissory note that spells out how you intend to pay your loan back. Include the amount you are borrowing, the interest rate and the repayment terms-- how much you agree to pay back per month and how long the repayment period runs, writes CNN Money.
Tips and Warnings
- Remember that friendship is more valuable than money. Start making your loan payments when you say you will and make each payment on time and in full.
- If you run into difficulty repaying your loan, talk to your friends immediately and let them know of your situation. Assure them that you do want to make your payments, but that you may have to make reduced payments for a short time.
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