“Creditors are a superstitious sect, great observers of set days and times.” – Benjamin Franklin

Ben Franklin, in his autobiography, tells the story of Ralph, a friend of his who had an affair with a young woman whom Ben admired. When Ralph moved to London, he left this woman in Franklin’s care. Franklin helped her out with chores, lent her money, and spent time with her. “I grew fond of her,” he says, and tells us that he made “advances,” which were “properly repulsed.” When the lady wrote to Ralph and told him of his friend’s “erratum,” he wrote Franklin, letting him know that “he considered all the obligations he had been under as annulled.”

Ralph felt wronged by his friend, so he reneged on his debt. Do you think that’s OK? I don’t. And Ralph didn’t either when he needed Franklin’s help later on but didn’t get it.

The pattern of their relationship prior to the “erratum” had been very good for Ralph. Franklin helped him in business, lent him money, and was generally there for him. When Ralph cancelled the debt, he lost that relationship.

But that’s not the reason Ralph was wrong. By refusing his financial obligation, he marked himself as an unprincipled and unreliable person. This is the kind of reputation that travels farther and faster than you would imagine. It can damage your current business and will hurt your prospects of future business.

Franklin’s experience with Ralph made this clear to him. That’s why he resolved to treat a debt he had — to a Mr. Vernon — very differently. He wrote Vernon several times expressing his appreciation for the loan and assuring him that he would repay it, with interest, as soon as he could. And the moment Franklin had some spare cash, he did just that, giving Vernon every spare dollar he had, paying back the principal in full along with more interest than Vernon could have hoped for. In treating the loan with respect and Vernon with a sense of gratitude, Franklin made a lifelong friend and eager future banker.

That’s the right way to handle debt. If you have debt — and this is especially true of an IOU to a friend or relative — do this:

1. Be thankful for the loan. Express your thanks in writing and in person. Be prolific in your gratitude and honest in your prolixity.

2. Pay a fair (market-rate) interest on the loan, even if your creditor tells you it is not necessary. This will show him that you value his money at least as much as he does — a critical consideration for him and an important signal about your character.

3. Stay in touch. A personal note now and then, along with your prompt payment of interest, will go a long way toward cementing a positive relationship.

4. If you run into trouble and have to delay payments, write him right away, explain the situation briefly, and suggest a meeting to discuss restructuring the loan. When dealing with someone else’s money, any delay in conveying bad news is a mortal sin.

5. When the loan is repaid, thank your creditor again.

TM understands this. To get his patisserie off the ground, he came to me asking for a bridge loan of $30,000. I made him go through a few loops to make sure that the use of the money would be well spent and then asked him to collateralize his business against the obligation . . . and then I gave him the money. He repaid me, on time, with interest, and with a bunch of French pastries thrown in as a “thank you.” Whenever I went into his shop, I was treated like a VIP. Thus, when he needed another loan six months later, I gave it to him without so much as a second thought.

I’ve lent a lot of people money over the years. Some people handled it the right way. Others did not. Those who bungled it — delayed or failed to pay me interest or haggled about the interest or never thanked me properly — never got another loan. Those that were golden got treated like gold.