We all know that lending fellow Jews money is a great mitzva, and the Jews of Baltimore are indeed generous when approached for a loan. Moreover, it is not only the rich who are fulfilling this mitzva; those of limited means often lend to friends and family as well. Unfortunately, fewer people know of the other aspect of this mitzva: You do not have to lend to someone who does not have a credible way to repay the loan. In fact, such a person is not allowed to borrow the money.
I have recently become aware of the extent of borrowing and lending going on in our community, because many of the lenders have been unable to collect. This sad fact leads me to the purpose of this article and some advice: If someone requests that you lend them money, use extreme caution!
Disclaimer: I am not a certified financial advisor. Rather, I am an experienced Baltimore businessman. All the advice here is based on common sense and many years of financial experience. It is always advisable to check with your accountant, attorney, or certified financial advisors before any important financial decision.
That said, here are a few tips for those being asked for a loan:
1) Only lend money you can afford to lose. Many borrowers have fine intentions of paying back a loan, but it happens all too often that they go so deeply into debt that they are unable to carry out their good intentions. Remember, lending to a friend or family member can hurt a future relationship. So lender beware!
2) Draw up a dated document at the time of the loan. Have the shtar (contract) state that you are making the loan for a fixed period of time to be paid back either all at once on a specific date or in weekly, monthly, or yearly installments. Have both the husband and wife sign the document. If possible, request dated checks for the loan payoff.
This document should have two signed witnesses. It is wise to also ask for two areivim (cosigners), persons of means who will guarantee payment by a specific date. You may want to take a mashkon, a piece of jewelry or other item of value as collateral. This would allow you to sell that item in the event the loan is unpaid according to the terms of the written agreement. Such a transaction needs to be part of the original written loan agreement. If it is a sizable loan, have an attorney draw up the loan agreement.
3) If this is a business loan, check with a Rav to find out if he can draw up a heter iska, a halachic document that converts the loan (for which it is forbidden to charge interest) to a business investment, allowing you to realize some benefit from the money.
4) If you feel uneasy about lending money to a specific borrower, direct the person to a local loan gemach, where they will have to borrow with areivim, guaranteeing pay back.
5) Here is something areivim must know: As an areiv, a cosigner, you are the guarantor of the entire loan. Even if there are two guarantors, each is totally responsible for the entirety of the loan. Do not think you are just responsible for just half of the loan!
6) It is sometimes better not to lend money but to give it as tzedaka, instead. If you are a concerned neighbor or friend – but not a relative – such a transaction could be done through a contribution to a shul charity fund or community tzedaka. You can recommend a specific person or family who would benefit from your contribution. Such recommendations can be taken under consideration by the charity, but donors are never guaranteed that they will be honored. (It is illegal to recommend family members, as family gifting may be a taxable transaction.) Check with your accountant or attorney and the charity about tax deduction issues when donating. If a transaction goes thru a 501c3 charity, you need to make sure it is legally permissible.
7) Before lending money, discuss the borrower’s plans as to how he intends to pay back in a timely matter. He may be counting on a tax refund or a yerusha (inheritance), a future job, or another source of capital. Make sure it is realistic and that the person is reliable and honest.
8) Most important, do not lend what you cannot afford to lose!
Eli W. Schlossberg is a Baltimore businessman, trustee of the Ahavas Yisrael Charity Fund, and source of common sense financial advice and assistance to community members. The Where What When is pleased to present this first article in his new mini-column, “Common Sense and Dollars” on current topics of financial interest.
