Sample Loan Contract (USA)

Whether the loan contract is good or not depends on the state that you live in, but most basic promissory notes should work. As for collateral, if he doesn't have anything, then you don't have any. What is he doing with the money? If he's buying something with it, then take an interest in that. It sounds like he doesn't have real property, so you would most likely be taking an interest in personal property. The UCC governs that, and it has been adopted in whatever state you live in in one form or another. Check Article 9. Those forms are pretty standard from state to state, though.

Sorry - I know I'm a noob here, but this is sort of what I do.

[dknightx]

It's a very long story ... let's just say I am helping him pay back a debt, and he rather owe me money then someone else. The reason I am doing this is not important, as I already have thought this through. My friend has no personal property worth anything close to what the loan amount is. Collateral is not a big issue, as I trust them to pay me back, I am just interested to see if it is something I should look into.

[ QUOTE ]
It's a very long story ... let's just say I am helping him pay back a debt, and he rather owe me money then someone else. The reason I am doing this is not important, as I already have thought this through. My friend has no personal property worth anything close to what the loan amount is. Collateral is not a big issue, as I trust them to pay me back, I am just interested to see if it is something I should look into.

[/ QUOTE ]

If he hasn't got anything then it isn't worth looking into. You could try to structure some interest in future earnings, future debts owed to him, later acquired property, etc, but from a practical standpoint, for a 15k loan, it's not worth the effort to do that. Just get a good solid promissory note with an attorney' fees clause and venue provision that lists the county you are in as the enforcement jurisdiction (in case he moves, you want to be able to sue him where YOU live, not where he lives).

If he defaults, sue him. It should be an easy judgment, then hit him with wage and bank account garnishments until he pays up or you crush it out of him. You know hat that will do to the friendship, but that's the risk you take.

[Chadt74]

If you want a template I can send you one that has a little more verbage than you probabaly need but would make for a good read to get you going.

PM me if you are interested.

[prayformojo]

[ QUOTE ]
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.

[/ QUOTE ]

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.

[Guthrie]

In answer to your original question: You can get pre-printed forms for such at Office Depot, Staples, or whatever you have in your area. If you don't want to spend the money, you can find plenty of books of forms at the library.

If you can afford to loan someone $15K, you should probably fork over another couple of hundred and pay a lawyer to draft a proper agreement.

I'm not a lawyer, but I've been through the legal wringer many times, and I can tell you without hesitation that anything you get in writing is better than nothing. I've seen scraps of paper, napkins, and doodling admitted as evidence and hold up.

Even if he has no collateral, and there's a good chance the loan will be uncollectible, you still want to get in in writing. If your friend dies, you have a claim against the estate. If he has any assets at the time of death, life insurance, or a claim against the drunk driver who killed him, you may ultimately collect some money. A verbal agreement is fairly useless in these cases.

If he files bankruptcy, your written loan agreement won't get you any cash if he has none, but you may find yourself with a nice tax deduction. There may be all kinds of qualifications on this regarding your relationship, the nature of the loan, and the relative timeline, but it can't hurt to get it in writing up front.