How to borrow money during COVID-19
Tags: Coronavirus, Self Improvement, Advice, Startup, Finance

How to borrow money during COVID-19

By Allison Kissell, Laura Carroll, Michelle Trame

22 million Americans are out of work. Many of us will be having uncomfortable conversations in the coming weeks and months, asking friends or family members to help us make rent, pay utilities, or float grocery funds our way. Many of us already have.

People say you should never borrow money from family and friends. And yet we do.

A 2018 Finder survey shows that $184 billion dollars are traded between family and friends, every year. And if you thought it was just you, let’s get clear — 88 million Americans borrow from family and friends.

Top reasons people borrow money from a 2018 Finder survey

We have a lot of questions

If 88 million Americans are borrowing money from family & friends, why aren’t we supporting them? If this is negatively impacting relationships, why aren’t we devising best practices to protect and support those relationships?

If 88 million Americans are doing it, why should we feel ashamed? Couldn’t we say that lending is a demonstration of the belief we have in each other? Couldn’t we say this is proof of resilient communities? Our society is overdue. It’s time to reframe the way we think about and talk about loans between family and friends.

We reject the social narrative that borrowing money from friends and family is wrong or shameful or irresponsible. And we reject the narrative that these financial arrangements are doomed to fail.

Let’s talk about what you can do to better protect your relationships for the long-term. We surveyed people in the Houston and Austin areas to better understand what would make them more confident in extending a loan to friends and family.

Lender sentiments from our 2020 research

4 principles for setting the tone and setting expectations

Honesty is the best policy

Lenders want to know why you are borrowing — not to be nosy about your business but because context gives them an indication of risk and helps a lender understand the potential need for flexibility in repayment.

Be mindful of lender limitations

When requesting a loan, never request to borrow more than your immediate need. If your lender is unable to offer full financial support, be flexible and willing to accept what’s on the table. Consider ways that you can proactively express gratitude and demonstrate your commitment to repay.

Expect to negotiate

An initial conversation isn’t about getting what you need, right off the bat. Both parties need to be on the same page, operating under the same set of expectations.

Negotiation simply means having a frank conversation to reach a point of compromise and agreement.

Create alignment with guardrails

Structure works because it keeps all parties aligned and operating under those same expectations. Develop a plan for how you’ll communicate throughout the course of the loan.

Let’s talk tactically

We asked people what was difficult about borrowing from family and friends.

Borrower sentiments from our 2020 research

We already feel out of control when we need to ask for money. That’s why our research is focused on improving the borrower experience. We want the borrower to be in the driver’s seat so you can assume an attitude of confidence, responsibility, and commitment. Being prepared with a plan will give the lender more confidence and trust in your ability and willingness to repay.

4 steps to make borrowing better for you

Prepare a loan request

It’s easy to over commit in the moment because we don’t want to fail, right? Thinking through terms ahead of time helps you be realistic about what you are presently capable of. Traditional bank-backed loans include initial loan amount, interest, and payback period. You may want to also include non-traditional options, such as work trade or collateral. If you are borrowing money to purchase a home, you could also offer equity. These options can help your lender feel secure in your loan and your commitment to repay.

Share the request with your lender

Successful loans start with clear requests. Consider a loan request document as a conversation starter. Use the formality of the terms to your advantage, to facilitate a conversation around what is best for both parties and to facilitate a frank conversation about your current capacity to repay.

Discuss flexible terms

The best part of friend & family loans is the flexibility and understanding that banks can’t offer. It’s best practice to give your lender advance notice if your situation changes.

By making it a point of conversation at the outset, you’re acknowledging the reality that life happens; and you will be better prepared to have the follow-up conversation if you need to request a change in terms.

Develop a cadence for payment reminders

Is there anything worse than realizing you missed the payment date, and now you feel guilty, and now you want to avoid the situation altogether? Yeah, that’s normal. Look ahead to how you might feel to develop proactive strategies for how you might cope with that. Develop expectations around how you communicate ahead of a payment due date. Is it 3 days before payment is due? Is it the day of?