Personal Loan Agreement - friend

[Guest]

Hi, I am agreeing to lend my friend some monies to help her and her husband in a building project. I will be writing up a personal loan agreement with them first.

My question is; does the loan amount absolutely need to be a specific amount? Because as it is a project there can't really be a specific amount until the project has completed. Anybody have any experience of this?

[Amethyst]

Be careful. We see many posts from friends who have fallen out due to money being lent and not subsequently repaid.

Is there a reason your friends can't obtain financing from a bank ? If a bank won't lend to them it may be because they have a record of not repaying lending ( ie poor credit file ). This is unlikely to be any different because you are a friend.

It already sounds like you are considering extending the amount you lend to them.

Have they fully costed the project ? Obtained proper quotations etc ? Have planning permission ?

How much will the loan be for and on what terms? When will repayment start ? Is it to be a monthly repayment or repayment in full ( plus some form of interest?) on completion of the project ( and sale of ?)

What happens if your friend and her husband split up and/or the project doesn't go ahead?

Do you have any security against the loan ? ( do they own their house and would they be willing to give you a voluntary charge over the property as security until the loan is repaid ? )

[jaguarsuk]

Don't do it, it will end in tears.

If they can't get the finance through a bank or other professional there's a reason. If they have not repaid previous debts do not be under the illusion that because you're friends they won't do that to you.

[Porcineplump]

Hello, I am OP - my friends have property and there is a mortgage on this one being set up - no problems anticipated. They also have properties as security- no poor credit profile.

My intent is to agree only under a personal loan agreement and the whole project has been costed with permissions in place

The loan at the moment is for an unspecified amount and the plan is to be repaid in full on sale of project.

I'm wanting to know whether the loan can be for an unspecified amount to be repayed in full on the sale. I'm not going to enter into the agreement until I am satisfied that the loan agreement is correct.

[Amethyst]

It can be for an unspecified amount but it is far more complex than having a specified amount, particularly regards repayment terms. You could have a maximum specified amount with 'drawdown' facility with a deadline for the monies to be drawndown by.

It sounds like they shouldn't struggle to get financing from a bank/lender - so I would question everything. Is this to be a bridging type loan to get the build done before they can obtain a mortgage against it ?

You want a precise date by which it is to be repaid and contingencies incase anything goes wrong with the build ( so a capital repayment upon sale or on XXXX date whichever is sooner - failing which a monthly repayment sum over a certain period starting on XX date regardless of whether building completed / sold etc ) How much will you be lending them ? If it is more than you can afford to lose, say, over £10k, then I would invest a couple hundred pounds in visiting a solicitor to draw up an agreement between yourself and your friends, potentially apply for a voluntary charge on their current property as security(maybe discuss part ownership of the build ??). A solicitor can also act as witness to the agreement.

These kind of arrangements fail more often than not so you really should involve a solicitor at the very beginning to protect yourself should the worst happen

[Porcineplump]

Hi guys - thank you for the time spent with my question today and I will engage a solicitior on this before I decide anything further.* Thanks again.

[Amethyst]

Can you let us know how things go if possible please. I'm sorry we can't be more positive - I'm sure many of these loans work out absolutely fine and we only hear about them when they do go wrong, so we may be a little biased/jaded.* The best thing to do is ensure you are as protected and the agreement is as bulletproof as possible. It seems sensible to discuss with a Solicitor so that the agreement covers all eventualities.Good luck, I hope everything works out for you and your friends

[Porcineplump]

Amethyst, yes I will let you know how it all goes. Thanks!