The Best Practices for Evaluating a Loan Request with Family & Friends

Introduction

Evaluating a loan request is crucial to minimizing risk and ensuring a smooth and profitable lending experience. Here are the best practices to follow when assessing borrowers.

Step 1: Talk to Them

Ask them questions about their need for a loan. Be empathetic but diligent in why they need help financially. Remember that they are family and friends to you first, before they’re borrowers.

Step 2: Analyze the Loan Purpose

Loans used for debt consolidation or business growth are generally lower-risk compared to discretionary spending.

Step 3: Assess the Repayment Plan

Ensure that the borrower has a structured repayment strategy that aligns with their financial capacity.

Step 4: Limit the Amount

If the loan requested is much larger than what the family / friend actually needs, then you should consider limiting the amount to only what they need.

Conclusion

By carefully evaluating loan requests, you can increase your chances of securing a safe and profitable lending experience.