Money Lending Rules

Updated on 4 Jan 2008:

Several sharings and comments on this blog entry since its posting. The ideas reinforced my belief that we should have established out money lending rules as early as possible.

Eng Peng suggested his blog entry on "How Do You Allocate Your Money - Part 2" for related read to this entry of mine. I'd looked thru and find his views useful. For sharing @ http://teaengpeng.blogspot.com/2008/08/how-do-you-allocate-your-money-part-2.html.

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Initial Post on 6 Mar 2007:

I understand the need for assistance, sometimes, when unforeseen events just popped up from nowhere and impact on our personal finance in a negative manner. I fell into this category sometime back in my life. I was lucky to have my mentors and friends to tide me over financially. Situation begin to improve as my financial plan falls in place.

While trying to emulate the compassion that was bestold upon me by those whom had helped me previously, i recokned that this form of compassion is getting unsustainable. As I build up my funds for potential investments, requests for financial assistance keeps streaming in too.

It seems like a norm that when a person needs to loan money, he will, somehow linger around your surroundings, also in constant contact with you. The situation changes when the money was finally loaned and entered his pocket, the communication channels suddenly disappeared.

I don't and won't feel embarassed to approach the person whom I'd lent the money to, in order to collect my money back. I do wonder how will they feel as I keep contacting them when the timeline which they'd promised to return my money back to me was breached. Relationships start to get strained in the process.

To me, the principle is simple. You'd approached me with a story to get a financial loan (interest free duh!) from me and promised to return that loaned amount by certain date. I buy your story and decided to issue the loan based on the trust I have for you, that your story is true, and, you will return me the money by the agreed due date. When this understanding is breached or somehow you just disappeared into thin air, our friendship suddenly is just worth only the amount you'd borrowed from me and your integrity and reputation becomes worthless.

After much considerations, I'd decided to establish some money lending rules to guide my decision making process in a logical manner, rather than being influenced by emotions.


MONEY LENDING RULES

1. I will consider to offer financial loan to my immediate family members and close relatives. Friends will be on a case-by-case basis. (Blood will always be thicker than water, so my friends, dont envy)

2. I will NOT lend money to clear any form of personal debts. (It reflects on poor financial planning, the risk of defaulting is extremely high and the strain on the relationships will be extremely unhealthy)

3. For friends whom wish to loan money for business purpose, I want to see the business plan. If the plan is feasible, I will offer to take equity stake or issue convertable bonds as options.

4. All loans must be accompanied by a written plan on how and when the money will be returned to me. Once this plan is breached, so will be our relationship. (I want it in black and white)


Sounds cold-hearted as I write. Pretty logical to my brain though. All for the purpose of building a long-term and sustainable relationship.

Cheers!
Leroy

'When I Stop Learning, I Stop Living.'