A close friend (or a mere acquaintance) of yours approaches you. States that he/she is badly in need of some money. And you oblige. In the back of your mind you know that the money would be returned to you, but there's no guarantee.
For what causes would you oblige?
Would you cough up a small amount for a start-up business?
Max how much would you cough up?
(I know the extent of amount would vary depending on the purpose. Hence, feel free to cite as many examples as you want.)
There was, at one time, a man who I would have given any amount of money at any time, for any reason, and never have lost a minute of peace worrying about re-payment. Very special circumstances, and he's long dead anyway.
Having grown cranky with age, and cynical by abuse of my trust, I've gone to the 'trust but verify' philosophy. Especially in business, I've learned that 'friendships' ALWAYS rely on some kind of cost/benefit calculation. Is the amount of money in discussion more valuable than the 'friendship'- to you? - or to the friend?
If I 'coughed up' it would be an amount smaller than the 'cost-benefit' calculation I assume my friend held, and as much as I felt comfortable with. Anything larger than that would require a series of very strong 'ties' around the friend's gonads.
Hope this helps
Personally I would never take money from a friend unless the payback terms were clearly defined. You can't put a price on friendship and money has a way of messing up relationships. That said, have you looked at services like Virgin Money for Social Loans: http://www.virginmoneyus.com/. They seem like a good middle ground for structuring friendly loans.
Has anyone reading had experience with these?
I have a personal policy of not loaning money to anyone. Mainly because it can damage relationships. Every time you come in contact with that person, it's possible that the topic of that money could come up. It could potentially put stress on the relationship. If the person never pays you back, you may begin to resent the person. In short, I wouldn't do it.
Here's what I would do. Think of an amount that you can just give to the person. Do that instead. If you can't afford to give anything away, then I would say you can't afford to lend it anyway.
Probably not what you wanted to hear.
In short, I agree with thoughts of The Simple Dollar.