Now I am so glad! I am thrilled! that some of you that are considering giving someone a loan are
watching this video because it shows me that you're trying to be careful to some degree. You're thinking, okay
I'm going to give someone alone. What should I worry about?
I've got seven things and it could be more but I've
Crafted a seven point checklist of things to consider before you give someone your hard-earned money in the form of a loan
Number one get the entire loan documented in writing and a caveat to this is
Making sure you don't give them money until they sign the document that you're preparing and writing
This is so important
You can't imagine as a lawyer in a law firm over the years how many people we've come to us?
That are trying to collect on a loan
that's documented maybe with an email and napkin at Denny's a
Handshake and there's the statute of frauds and all these other little rules that go with it
But if you're trying to enforce collecting the money of giving someone alone, you've got to get it in writing
Please do so and make sure that they sign it before you give them the money number to
get that interest rate out there in writing and
Make sure it's agreed upon and this means a lot you could hear the term out there two points and 10% interest
Well, what does that mean?
Two points usually means that I'm gonna give someone a level four $10,000 and I want two points back either
At the front or the back or one on the front one on the back and a point on
$100 that's one percent of $10,000
So if I get two points, that means kind of like the loan fee just to get the loan is $200
When are you gonna receive that right up front later on?
Like I said anywhere in between that's two points and then it's the 10% per annum
Meaning divided over 12 months. So if someone
Takes a loan from you for a six month period is it really five percent over the period?
Because it wasn't a full 12 months. So make sure the interest rate is completely clear as to when it's calculated
Is it monthly or annually and how do you come to that interest amount number three the term?
What is the term of the loan is the loan for one year five years ten years and when do they make those payments?
To me that's part of the term, you know are the terms could mean a lot, right?
But on this point I'm talking about. When do they make their payments? Is it due?
Monthly annually every six months quarterly. And when is the loan due in full?
someone may make interest and then they may make a balloon payment on the back end or they might make
principal payments along the way and interest payments monthly and get a loan can be calculated or treated in so many different ways but
No, one remembers what those terms are if they're not put in writing go back to number one
Number four, what are the penalties for someone not making their payment on time?
is that after 5 days or 10 days or 30 days after the
Payment was due is there interest on top of those penalties is the Pennell are the penalties added to the principal amount
see all this is captured these first four points in the promissory note and this promissory note is what's going to
Capture all of these terms and then put in writing is going to be signed by the parties now
They don't have to be notarized. It might be nice, but you want to have that promissory note with these first four points
Clearly defining what these terms are number five. Let's get a little more creative and a term that might be in that promissory note our
prepayment penalties if someone prepaid the note you might want a penalty because you wanted to
guaranteed rate or return over time
So lenders will put a prepayment reward in there because you're like hey if you pay this off early, I love it
I'll discount it by a certain amount so you can have all these little
Prepayment bells and whistles in the promissory note as well number six and I saved one of the last two points the best for last
Security this is so so important. What is the collateral behind this note?
Are you going to have a lien against real?
Property like a mortgage or are you going to have a lien against a car and hold the title?
or are you going to have a personal guarantee from the person that you lent the money to for example a
Personal guarantee means that if they don't pay you can sue them personally in court and go after them unless they claim bankruptcy
You're gonna have a good chance of getting that money. Well, you may say that's not good enough
I want to lean against their property and is it a first or second or third position loan?
Are you going to be behind others as lien holders?
Against a piece of property. That's scary. You got a do your due diligence?
Oh, I just gave you a hint to number seven in the final point
But here's the point you want to make sure that that security is free and clear or at least you know
What security you're getting and what position you are in front or behind of other people?
And I can't say enough that collateral does make sense and a personal guarantee
Which means you're gonna be asking who's this note given to are you lending a company or a person some people would say?
Oh, I want you to loan my company, but there's no personal guarantee
Uh-huh doesn't have as much teeth as a loan to some individual
So think about that number seven and finally do your background on this person or company that you're loaning money to?
Do your due diligence on the collateral that you're gonna be getting?
To protect you if they default on the loan and ask yourself this important question
How bad would it hurt if you lost the money on this loan if this is your last?
Dime and you're just lending it out to someone. Maybe that's not a good idea for this loan
you might want to use a more safe investment to build your net worth and
Then use lending as another strategy in your portfolio. Be careful loaning your
Life's savings to someone it can be dangerous now first trust deeds a term
You'll hear out there
To someone with a first trust deed lien against property and those are very secure and you're not gonna get as big an interest rate
Because they're secure but you always want to ask yourself. Who's this person?
what's this property worth and
can I afford to lose this loan and how bad with the damage be and you've got to ask those hard questions in summary is
Lending bad. No, it is borrowing bad
No, but you want to make sure that it's in writing with all these terms I talked about and you ask yourself
About the worst case scenario and the best case scenario
So get it put together properly and get it reviewed by an attorney
even if you just paying for a half hour or an hour at most to just kind of look at the terms and make sure
You're not missing anything
If you're gonna loan someone thousands and thousands of dollars a little bit in the preventive maintenance for a few hundred dollars with an attorney
Maybe a very wise move in the process. Good luck
Thanks so much for watching that video and I want to be your source for tax and legal strategies
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