In 1964 a local businessman lent my father enough money to launch his business; you could say his money, combined with my father’s ambition, underwrote the next fifty years of our family’s above-average financial well-being. My father was able to grow a substantial business, and the lender, a man that expected very little in return, slightly profited; however, he left a lasting impact that spanned three generations.
More often than not, businesses are built upon loans. Without loans, the world of commerce would come to a grinding halt. If you plan to borrow or lend money, here are a few simple rules to live by:
Borrowing: Nobody forgets a bad debtor! A debtor is someone that owes a sum of money. The only way to become a debtor is to take on a commitment to pay a person, friend, bank, company, or other lender in the future. If you owe money to anyone, for any reason, you are a debtor. Who you owe, the amount you owe, why you are indebted, and your current circumstances DO NOT MATTER. Unless you are released from your debts, you are a debtor. If you don’t live up to your payment commitments, you are a bad debtor. You can be friendly, smart, generous, and soulful, but if you are a bad debtor, it’s a negative tag that’s impossible to escape. The database is permanent, and although people forgive, they never forget unpaid debts. If you want to avoid being a bad debtor, don’t go into debt. And if you choose to go into debt, make damn sure that you thoroughly understand, and can live by...the terms of your debts.
If you are struggling with your debts, always, always communicate with your lenders; reiterate your commitments; negotiate extended terms; and never act as though your misfortunes are someone else’s problem or responsibility. Pay your debts and be remembered as a good debtor. I want to reiterate that being a bad debtor does not equate to being a bad person. Understandably, some people have to ask for their debts to be forgiven. The point is, the “bad debtor” tag is nearly impossible to shake, and better to be avoided altogether.
Lending: Smart lenders anticipate bad debtors. Unfortunately, there are too many good people that are bad debtors. If you are thinking about loaning someone money, or getting paid in the future for anything, including your labor, make sure you can afford to convert your ‘loan’ into a donation. People get sick. People fall on hard times. Stuff happens. As a creditor, be prepared to suspend or extend payments and forgive debts.
When lending, ask for repayment terms, including interest, that are equivalent to the terms you would be willing to accept as a borrower. When the potential for nonpayment is obvious, charge higher rates. Be transparent about everything and never take advantage of people. Put everything in writing. Here’s a tip: use your phone to record a video whereby the debtor reiterates his or her commitments; nothing outlasts a reminder that includes the recorded words of a borrower.
It’s really, really challenging to be both a friend and a creditor. If a friend needs money, once again...make a donation. If a friend owes you money, is unwilling to live by your agreement, and is threatening to end your friendship, then they are friends you don’t need. Collect what’s owed and find new friends.
Lending and borrowing can change lives and help dreams come true. No matter the amount or the persons involved, take it seriously and live up to your commitments.
I write these notes to share with my children...