Legal Question in Credit and Debt Law in Texas
Documentation for a personal loan
I am heavily considering loaning a friend a pretty large amount of money. I don't have any doubts that this individual will repay me but I want to be cautious nevertheless. He has agreed to sign a promissory note, my question is what exactly should be included in the Note to ensure that I have no problem collecting if it comes to that.
1 Answer from Attorneys
Re: Documentation for a personal loan
If you want to play banker, do what the bankers do. Make sure you have a security interest in property that has, and will have, a value of at least 125% of what you are loaning. That way if they default on the note, you can seize and sell the collateral.
Before you lend the money, ask yourself why this friend can't borrow the money from an institution that is in the business of lending money. If it's because the friend is a bad credit risk, then be prepared to write off the loan as a bad debt.
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