WHAT TO DO When a Friend Needs a Loan

My new article on Maria Shriver’s The Women’s Conference:

By Frances C. Jones

“Brother can you spare a dime?” was the title of one of the best-known songs of the American Depression. In these days of downsizing, foreclosures and lost investments, we’re more likely to be asked, “Can you spare $200 —or $20,000?”

Regardless of the size of the request, having an acquaintance, friend, or family member ask you for a loan can be among the most anxiety-inducing conversations you will ever have.

It’s not because the majority of us are Scrooges—we want to help if we can. The tricky bit is deciding both if we can, and this is possibly the more distressing part—and whether the person making the request is someone we feel will use our financial aid to their best advantage.

Just as it’s essentially impossible to speculate about what goes on inside a marriage, it’s essentially impossible to speculate about the conditions surrounding others’ financial situations.  In both cases, there are likely to be any number of mitigating circumstances.

So, what to do?

The first thing I recommend is to establish the facts about the situation in question—both theirs and your own. As you ask questions about their circumstances, it’s vital to be clear that it’s not because you want to pass judgment, but because you need to have an understanding of the complexity of the situation before you commit. NOTE: In my experience, if you find yourself wanting to pass judgment, don’t make the loan. If you feel information is being withheld, this should also serve as a red flag.

Continue probing, but gently—people in need of a loan often feel an enormous amount of shame. Their unwillingness to tell you everything immediately likely has more to do with that than with a desire to keep you in the dark. Additionally—depending on the severity of their circumstances—they may be in survival mode, making it difficult for them to answer the questions, or attempt to plan, in a way that makes your heart sing. If they didn’t approach you in a way that was professional, considerate and thoughtful — that’s a factor. A more important consideration, however, is how they took your request for more information/time. Once your reasons were explained, were they respectful of your thinking? If not this, again, may be reason enough not to get involved in making the loan.

Having established the facts, it’s now time to ask yourself some fact and feelings-based questions. So, let’s start with the fact-based questions.

  1. How am I situated financially right now? Do I have three months of living expenses in the bank?
  2. Am I in possession of all the facts integral to my understanding of their situation as it relates to this loan?
  3. Do I have an expectation of being repaid? If so, have I stated those expectations clearly, and put them in writing? What if the loan is never repaid?

You now need to address the feelings-based questions because it’s unlikely you will be opinion-free about those things you think are important to spend money on. For example, it can be very difficult to approve money for a loan if you disagree about the importance of their kid getting a private school education, or think they should overcome their distaste for mass transit, or are baffled by their commitment to feeding their dog organic food. With this in mind, ask yourself the following:

  1. What are my potential triggers once they have my money in-hand? Do I have opinions about how I think the money should be spent?
  2. Am I willing to forfeit my opinions?
  3. If I am not able to commit to a condition-free loan, is it possible for me to give assistance for a specific financial goal or situation?

ls asking them or yourself these questions likely to be fun or comfortable? No. Doing so will, however, give you the language to state the reasoning behind whether you are the appropriate person for them to appeal to. And the fact that you were willing to take an unflinching look at what you might be bringing to the situation is likely to make it easier for you to present your reasoning with equanimity and for them to accept your decision with grace.

Frances Cole Jones is the founder of Cole Media Management and the author of How to Wow: Proven Strategies for Selling Your (Brilliant) Self in any Situation, and of the new The Wow Factor: The 33 Things You Must (and Must Not) Do to Guarantee Your Edge in Today’s Business World.