Q&A - Could we have a legal document drawn up for a private loan to our daughter?

Q:    My son-in-law lost his job at the start of the covid pandemic and is still out of work. Fortunately, my daughter still has her job, but they are struggling financially. They want to sell their house and downsize so that my son-in-law can start his own business, but they need to finish renovating their current house in order to sell it at its full potential value. They need a short-term loan of around £16,000 but have been unable to find a lender willing to help them. We could lend them the money, but we are concerned about the implications if something untoward should happen to change the situation. Is it possible to have a legal document drawn up for such a loan?

A:    Your daughter and her husband are not alone in being currently unable to access funding, and it seems that lenders are even more reluctant to offer small sums for shorter terms. Since the start of the COVID pandemic we have found that an increasing number of people want to assist family members with loans. Close friends and employers are also enquiring about the best approach to providing a private loan.

Whilst providing a private loan is perfectly feasible, it is however vital that a proper contractual agreement is drawn up for the protection of everyone, as even the most amicable situations can develop mitigating circumstances that could lead to potential disagreements and issues.

A solicitor can advise on the best way to structure a private loan and can prepare a suitable agreement and put in place any necessary security measures such as a legal charge, personal guarantee, or debenture. Having everything prepared in this way and fully explained to all parties will put the arrangement on a proper legal footing and reduce the risk of spoiling a good relationship.

Article 03/05/2021

This question has been answered by James Denton, a Solicitor with GHP Legal.  If you would like to speak to someone about this or any other legal matter it is still possible, and we are doing everything we can to ensure that we continue to offer our high levels of service to our clients.  In accordance with government guidelines, most of our lawyers are currently working remotely which means you may not now receive a response as promptly as you may expect. Please kindly bear with us and we will respond as soon as we are able.

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