Lending to Each Other

QuestionI want to lend money to my nephew for a business venture. How can I do this without any misunderstandings?
Richard B.

AnswerPeople to people lending is growing fast. I have seen here in Silicon Valley many middle-class “angels” who have helped people get their businesses off the ground and share in the profits (hopefully). If the amount is under $25,000 a better way to go would be to use some of the on-line lending networks. They are:

www.propser.com
www.Lendingclub.com
www.Zopa.com
www.GlobeFunder.com
www.VirginMoneyUS.com

The advantages of these sites are that they are quick, have less paperwork, and sometimes have lower rates than a traditional bank depending on your nephew’s credit record.

In some cultures where there is no banking infrastructure, people to people lending was the way the economy grew. Today, micro-finance loans to emerging market economies are doing terrific with a extremely low default rate. I like these micro-finance mutual funds as an investment. In America, these programs have not been as successful, I fear because our ethics and the high standards to pay back what is owed is not respected.

Many non-profits are also creating ongoing support for their recipients so that the default rate is kept to a minimum. Lenders for Community Development is one non-profit where I have coached their successful alumni.

People to people lending is also a great place for students to get a loan for college.

Coaching Question – Would you lend money to a relative and how would you do it?

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