Re: Sample Loan Contract (USA)
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I was hoping someone could speak more on the issue of "collateral", as my friend does not really have anything worth close to the amount I am loaning. Car is owned by the parents, and they just recently graduated from college.
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In Canada, most provinces have General Security Agreements. I would be surprised if most states didn't have the same sort of agreement. Basically, a GSA gives you a security interest in all assets owned at the time of the agreement, and in all assets later acquired. So if you give him 5 years to pay the loan, and in that time he improves his lot in life and gets himself some bling (legal term) but doesn't pay you back, you have first shot at taking his stuff in lieu of your money. This is definitely the sort of thing you would want a lawyer or other qualified professional to draw up, and you may want to insist on him getting independent legal advice when he signs it.
Oh, and try to keep "trust" out of lending arrangements. I know that's the sort of statement that gives lawyers a bad name, but think about this. Protecting your interest isn't just a matter of forcing him to pay if he refuses: it's a means of ensuring your place in line if he owes money to more than one person or organization. If before he pays you back, he gets money from someone else, or grants a security interest, or gets a mortgage, or has a court judgment registered against him, you'll be last to get paid. He'll want to pay you back, he'll want to be a good friend, but the law will snatch your money out of his hands and put it into the coffers of the bank that had the sense to get proper security.
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