Friendship and money can make a messy mix – think Jacob Zuma and Shabir Shaik. Or Thelma Mtungwa and Khanyisile Ndlovu, the best mates who made marginally smaller headlines when Mtungwa was suspended from her senior position in a Gauteng bank last year for allegedly looking into her friend’s personal account. She was reportedly upset that Ndlovu had failed to honour a monthly payment into a stokvel savings group they’d formed with other friends after a girls’ night out.
‘I can’t tell you how many friendships are broken over money, often derisory amounts,’ says Chris Brusschau, senior manager at Standard Bank Financial Consultancy. The issue of lending money is particularly fraught, because people are afraid of offending friends by asking questions when asked for a loan, or formalising it, say he and ABSA group spokesman Errol Smith. But you end up losing friends far more acrimoniously when you don’t.
WHEN A FRIEND REQUESTS A LOAN
1 BE CAUTIOUS Ask yourself why, says Suze Orman, author of The Laws of Money, the Lessons of Life (Free Press). Why do they need it? And why ask you? It’s one thing if they’ve had a health crisis or lost their job, but another entirely if they’ve overspent (again!), want money for a holiday, or to start a business (the riskiest loan of all). If they can’t get money from a conventional source such as a bank, be wary.
2 DON’T LEND MORE THAN YOU NEED ‘If you can’t afford to lose it, don’t lend it,’ says ABSA spokesman Errol Smith. Simply say you’d love to help, but you don’t have that kind of cash. You’re not saying you won’t lend it, just that your circumstances prohibit it. Alternatively, make the gesture by offering a small sum towards what they need. You can also suggest ways to help – draw up a budget with them, or introduce them to a good adviser.
3 PUT IT ON PAPER For big loans, have a lawyer draw up a contract (which can be expensive), but you can also buy acknowledgement of debt forms at stationers, or draw one up yourself, and preferably have it witnessed. Include the amount of the loan, the repayment period, the terms (full amount by a certain date, or installments?) Don’t forget to include interest.
You’ll also need to declare interest-earned to the taxman, says Standard Bank’s Chris Brusschau, but under age 65, you’re allowed interest in total, from any source, of up to R16 500. If you put down the loan as a donation, you’re exempt from tax on up to R50 000 a year.
4 TAKE THE INITIATIVE It’s up to the lender to take protective measures and see there’s a written agreement, says Brusschau: ‘When a bank lends, they don’t expect you to come forward and offer them a repayment deal!’ But Orman believes the borrower should ‘tell you right off the bat that they want to sign a formal loan document. That’s a sign that they respect not just you, but the importance of what they’re asking you to do.’ If you have to ask for a contract, it should sound an alarm.
5 STICK TO THE SCHEDULE Have repayments made directly from the friend’s bank account into yours, to lessen the risk of anyone getting forgetful and straining your friendship.
6 DON’T MEDDLE Once you’ve made the loan, don’t pry into their financial progress – asking you for money was probably difficult enough.
7 DON’T EVER CO-SIGN or sign surety for someone else. This can be more risky than losing the money, warn the experts, as it can hurt your credit history.