A recent survey said 21% of people polled who have...

A recent survey said 21% of people polled who have been laid off due to the coronavirus plan to get a loan from family or friends. Credit: Getty Images / iStockphoto/Vyacheslav Dumchev

These are tough times indeed. More than 36 million people filed for unemployment claims in recent months. The unexpected left many in a lurch. In desperation folks in trouble are turning to family and friends for financial help.

In fact, 40% of those polled in the May 2020 Simplywise Retirement Confidence Index said they would not have the means to come up with $500 in cash today. Twenty-one percent of people surveyed who have been laid off due to the coronavirus plan to get a loan from family or friends.

So what if you get that call? Do you give or not?

Can you afford to help?

“Loans to family and friends can be tricky. Normally I would not recommend doing them. However, we are in unprecedented times. People may be in a severe financial bind due to layoffs or business closures,” says Randi Nelson, of Amityville, author of "Ladynomics: A  Woman’s Prescription for Wealth and Financial Well-Being."

Brian Cohen, principal investment adviser with Landmark Wealth Management in Melville, has an analogy he shares with clients facing this dilemma.

“I ask them if they are familiar with the safety instructions the flight attendants give before takeoff," Cohen says. "They always instruct that if adults are traveling with small children, and the oxygen masks come down, the parents are to make sure to get sufficient oxygen themselves first, before giving oxygen to the children.”

The point is well taken. If you aren’t in a position to help, if your financial house isn’t in order, much as you want to help, if you can’t, you can’t.

“Just remember one thing — this virus isn't over yet, no matter what you might read in the papers. Even though you're employed now, it does not mean you will be next week or next month. Be as helpful as you can but be cautious as well. The last thing you want is to extend a loan to a friend or family member only to find that two weeks from now you really need that money,” says David Bakke, a contributing writer for DollarSanity.com.

Just say no

Sometimes, saying no has nothing to do with your inability to give. When should you think twice? For one thing, if you need the money back, as there is the chance it won’t get repaid.

“My first choice is to always avoid loaning money to friends and family. I follow the same logic when I coach my clients and friends. Unless you are in the business of banking, you should avoid being the bank. This provides undue stress on relationships, making the relationship a bit more challenging, muddying the waters as it were,” says Zac Weiner, a CFO in Manhattan.

Ask whether they have exhausted all their options. “Have they taken unemployment? Sold all salable assets and so on,” he says.

Ethan Taub, CEO of Loanry.com says there is nothing to debate, “Never lend money to family and friends as it will almost always end in disaster. There’s a reason they’re asking you and that’s because they’ve exhausted all over avenues. Banks, credit cards and loan companies won’t stump up the cash to them because they are obviously high risk and are therefore not confident in them paying the money back on time, if at all.”

He says to avoid the drama, “I’ve seen families split, break up and never talk again over comparatively small amounts of money. Family are less inclined to give you money back on time rather than the bank as there are no civil or financial penalties. Say a polite but firm no and save both of you that hassle.”

Yes, but

If your heart and your head agree that giving is responsible and the right thing to do, give wisely. Set parameters. Sure, you are loved ones, but business is business. Put everything in writing. “Be clear about how much is being lent, how much needs to be repaid, by when. Stipulate what you will do if payments aren’t made on time,” says Adam Sanders, director of Successful Release, a Philadelphia organization that helps people with their finances.

The agreement should be signed by both of you and notarized.

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