We’ve all been there. At some point of our life, somebody somewhere will ask if they could borrow some money. I’m not talking about the small “Hey I don’t have any small change to pay for parking, can you spot me a dollar?”.
I’m talking about “I need to borrow RM500 because… <insert reason here>”. Sometimes it’s RM500, sometimes it’s RM200 or sometimes it’s RM10,000. Whatever the amount is, it’s significant enough for you to go “Woah”.
The question I thought about tonight is how do you know if you should do it? Well after some thought I managed to narrow it down to this,
1) How important is this friend to you?
Very often the person who asks to borrow money from you is someone you haven’t seen in a long time. An old friend I haven’t seen in years one day called me up and asked me outright if he could borrow RM15,000 from me. He needed it as a bridge loan to do something and that he had money coming in from a sale of another property and would be able to pay me back in a month.
If it’s a friend you haven’t seen in a really long time and suddenly calls you up for the sole purpose of borrowing money from you, I’d say maybe not.
But if it’s a friend who you see all the time and matters a lot to you. Then I would consider the next question…
2) Do you want to help this person?
If your answer is no then you have your answer there.
If your answer here is yes, I’m assuming this person matters enough to you that you do want to help him/her or is a good friend.
My father always told me that if you want to help a friend, don’t lend him money. Give it to him. Why? Because the minute you lend money you stop being friends and start being debtor and creditor. Debtors and creditors don’t hang out. They don’t share completely transparent friendships anymore because there is often an unspoken tension of that money owed in between.
Now that’s all fine and dandy if the borrower (debtor) pays you back on time as promised but most of the time that doesn’t happen. So as my dad tells me, if you lend money to a friend.. prepare to lose a friend.
If you’re rich enough to help… then give. Don’t lend. You don’t have to feel obligated to give everything. If someone needs to borrow RM500, maybe you could say I can’t lend you RM500 but I can give you RM100 or RM200.
In the past I’ve taken steps to give money rather than lend (though the amounts aren’t too significant) and I’ve maintained friends with those people I helped.
3) What’s the money for?
Half the time you don’t really know what the money is for. Even if you were told what the money is for, chances are your gut tells you that’s not the truth.
As for the other half of the time you would know. If it’s for gambling you know that’s a big NONO. If the money is for a business then hey instead of lending money why don’t you analyze that business and invest in it rather than lend. That way you and your friend form an investor and entrepreneur relationship rather than a creditor and debtor.
If that money is to help someone who is sick in that family… then I’d say that’s a good reason. This reason however is often abused. I’ve had someone wanting to borrow money from me to fund treatment for his mom’s cancer… only for me to learn later his mom didn’t actually have cancer.
4) How much does this money matter to you?
If you have a RM10,000 in your bank, lending someone RM5,000 is something that would really put you in a difficult financial position.
If however you have RM1,000,000 in a bank and can afford to lose that RM5,000 without losing sleep then by all means go ahead.
The thing about this is that everyone has different thresholds on how much money is a lot relative to the total wealth they have. But the key here really is to ask yourself… how much money can I afford to lose (assuming I don’t get paid back) without losing any sleep at night?
5) Has this friend helped you before in the past?
One thing I tend to have (don’t know if it’s a strength or weakness) is that I have a lot of loyalty for people who have helped me in significant ways in the past at some point of my life. If someone helped me before and now needed help in return I would seriously consider this.
This of course can sometimes be used as a motivating factor by the friend who wants to borrow money from you. He can say “I helped you before when you did this…”…. even though he didn’t really. So it’s really up to your heart to decide if someone really helped you. We can’t lie to ourselves about these things.
6) How sincere is this person in repaying you?
I know. When you see this question the first thing that comes into your mind is “How the heck am I supposed to know this? I don’t have a magic crystal ball!”.
There really is no way to tell if someone’s really sincere in repaying you. But there are signs. Like if someone came to you and said “I want to borrow RM5,000 from you…” and doesn’t offer any security or collateral, that’s a sign to me that the person really isn’t thinking about your own concerns.
If however someone came to you and said “I need to borrow RM5,000 from you and I promise I’ll pay you back and I’ll let you hold on to this expensive watch my father gave me until I do”. That’s someone who seems more considerate of your situation and I’d say has a higher chance of paying you back.
Now obviously this isn’t a universal rule. Heck nothing is a universal rule… but to me personally it just adds points to the decision in favor of lending someone money.
7) Is this person financially able to pay me back?
Well this is a basic question we all consciously or sub-consciously ask ourselves. Does this person have the means to pay us back? Heck it’s the questions banks ask themselves too before they give us loans. That’s why they ask for our salary slips and anything that helps them assess how much money we have or will have.
But one thing we often overlook is that most of the time people don’t pay you back for many many reasons… but not having enough money isn’t one of them. I know many very rich people who owe lots of money but refuse to pay a cent. Heck there are many rich businessmen who would rather be declared bankrupt than pay the bank back for their business loans.
So don’t make the mistake into thinking that rich people won’t not pay you back. Very often they really don’t.
8) What are the odds?
Well everyone has a different experience so I can share only my own personal experience. In the past I have lent money to many friends in my life. I have only ever got paid back once. Only ONCE was the person who I lent money to sincere in paying me back. In fact he was so sincere that when he paid me back, he paid me back with an additional 10% interest per annum. I refused to take it but he insisted.
So just one. Those are the odds.
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All in all, like I said earlier… there is no universal rule to whether or not you should lend someone money. In fact my hope is that if you do decide to lend a friend money, that your friend will repay you against all odds and you’ll be even better friends after. To me and just to me personally… these are the things I consider.
Good luck!
Timothy Tiah – Co-Founder of Colony, Kuala Lumpur Co-Working Space