Neither A Borrower Nor A Lender Be

“Have a horse of your own and you may borrow another’s.” – Welsh proverb

When it comes to making personal loans, don’t. Don’t borrow. Don’t lend. As Shakespeare said in Hamlet, “A loan oft loses both itself and friend.”

Borrowing from friends and/or family members sends a message of weakness: “I am not capable of managing my finances properly. I lack something you have.”

Borrowing introduces into personal relationships an element that shouldn’t be there: financial dependency. The best personal relationships are those in which each party is strong and independent.

Borrowing brings with it (or should) a high level of stress. You have to manage not only to pay back the loan according to the terms provided, but also to restrain yourself from letting the financial issue cloud the personal relationship. This is very difficult.

Lending is just as bad. It will make you think less of the borrower, even if you don’t want to. And if he doesn’t pay you back, you won’t even like him much anymore.

I follow half my advice. I have never borrowed money from friends and/or family members. OK, that’s wrong. I have occasionally borrowed money for the movies when I forgot my wallet. And that was humiliating. Plus, now that I think of it, I don’t believe I ever paid it back. And I can’t even remember who the lenders were. See what I mean?

I do lend money to friends and family members. And I have sometimes regretted it. Not because I didn’t get paid back or because I get paid back too slowly, but because when I don’t get paid back I find myself thinking less of the borrower than I did before. And that’s a very significant cost.

What can be even worse, the borrower often resents having to borrow and instead of feeling appreciative feels resentful. More than several times, I have gotten the distinct impression that friends who owed me money were angry about it.

That is not always the case. About a third of the time (to make a rough estimate), the lending goes very nicely. The borrower understands the value of money, is appreciative of the loan, and repays it promptly. This makes everything actually better.

But one out of three is not a good ratio when it comes to personal relationships. My current rule on lending is this: Don’t lend it. Give it away. It’s quicker. It’s simpler. And it costs less.

In business, you should have the same standards. If you expect to be repaid, you should make sure that the borrower understands this and that he makes that understanding clear on paper. You should lend money knowing that you will have to ask for it back. If you are not willing to do that — to ask again and again if necessary — just say “no” right away and save both of you time and hassle.

Morris Sher, author of “Collect Debts and Still Keep Your Customers,” has this to say about debt collection: “If you are going to extend credit, expect to have to collect it. Many businesspeople assume that if they have $1 million in sales they will collect $1 million. But if you are extending credit, that’s not going to happen — for two reasons: (a) There are people who will never pay and (b) many will pay you very slowly; which can be just as agonizing.”

Sher advises small businesses to have some kind of credit application for clients in order to get all their vital financial and personal information, including Social Security numbers, bank account numbers, etc. You should have a process for making follow-up phone calls right after bills are sent to find out if customers are satisfied and to reemphasize your credit terms. Act first on the most current receivables that have the biggest balances. Consider offering percentage discounts on outstanding balances for customers who pay quickly. Be persistent and consistent, Sher says, and your customers will pay you and stay with you.