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If you lend money, arrange more than just trust. It starts with a good loan agreement, and with collateral such as a pledge, mortgage, or surety, you are in a much stronger position if the borrower defaults.
Tip 1: Draw up a loan agreement
Record how much you lend and under what conditions: the principal, the interest rate, the repayment schedule, the term, and what happens in the event of late payment or early repayment. A written agreement prevents disputes and serves as your proof.
Tip 2: Ask for assurances
Trust alone is no security. Where possible, request collateral: a pledge on assets or claims, or a mortgage on real estate. With such a security right, you can recover with priority in the event of default, even in the event of the borrower's bankruptcy.
Tip 3: Consider a suretyship
A third party — for example, a director or parent company — can act as guarantor for the repayment. If the borrower cannot reach you, you can call upon the guarantor. When using a private guarantor, pay attention to the additional legal protection and the sometimes required consent of the partner.
Tip 4: regulate enforceability and default
Specify when the loan becomes immediately callable, for example in the event of missed installments or bankruptcy, and how default occurs. This allows you to act quickly and avoids having to wait for months.
Frequently Asked Questions
Is a verbal agreement sufficient if I lend money?
Valid, yes, but difficult to prove. A written loan agreement is much stronger and prevents disputes.
Which certainty is the strongest?
A pledge or mortgage provides priority for recovery, even in bankruptcy. A suretyship offers an additional point of contact.
What should I look out for with a private guarantor?
On the additional legal protection and the sometimes required consent of the spouse or partner.
Lending money safely?
Our legal experts draft your loan agreement with the proper collateral. View our financial lawteam or schedule a free consultation.
