Hank is a savvy businessman. A self-made man, he knows the value of a dollar, and cannot be taken advantage of in a normal business deal. However, his big weakness is that he has a generous heart. Especially if you have known him for a while, Hank will lead you some money and is not too strict in making you repay it. Although it has happened several times, Hank is always genuinely surprised when people do not pay him back as they said they would.
It is surprising how many otherwise frugal individuals will lend hundreds or even thousands of dollars to family, friends, employees or business associates without taking any steps to protect themselves. Of course, I’m not talking about gifts. A gift is where you give somebody money and don’t expect to be repaid. I’m talking about where your buddy Joe wants to open a garage and needs $5000 to buy a used hydraulic lift. Or where cousin Sammy finds out about a can’t miss investment opportunity, or where the switchboard operator at your office is going through a divorce and needs rent money. Sometimes you just can’t say no.
If you really do expect to get your money back, you should at the very least get the borrower to sign a promissory note setting out how much money you are lending them, and any terms as far as interest and when they have to pay you back. Unless you include a statement that they have to pay your attorney’s fees if you have to take them to court to collect the money, you will not be able to recover these fees. Also, it doesn’t do any good to get the note signed if you are not going to act promptly to collect the debt. Once they fail to pay as agreed, the Statute of Limitations in South Carolina is three years – so once they failed to pay as agreed, you have a maximum of three years to file a lawsuit to collect the debt, or it’s like you never lent them the money.
A lawyer with experience in diplomatically dealing with debtors to set up an enforceable payment plan is about the best friend you can have when being a Good Samaritan comes back to bite you.