Bury and Bolton law firm Clough & Willis has seen a growing demand for advice around family-style loan agreements. The firm has reported a rise of around 40% in new enquiries over the past three months compared to the same period last year.
The popularity of loans between family members or close friends is growing month on month as some commercial lenders become more wary of the risk profiles of their clients – especially since the onset of pandemic. This is compounded by rising job insecurity as the furlough scheme and other government-led initiatives are set to wind down over the coming months.
Other factors driving the trend include the admin costs and charges, interest rates and security required by commercial lenders and relative inflexibility, compared with family loans.
Family-style loans typically take place within a family, between close friends or in an employer/employee situation. The most common are for younger people who want to get on the property ladder, but we there has also been an upturn in their use for bridging finance, to fund divorces and to set up new businesses.
Even in the context of a family loan, there is a need for contractual agreements to be in place in order to mitigate potential issues and disagreements once monies have been loaned. The most popular services the firm is seeing are advising on the best legal structure, preparing loan agreements; and putting in place any security required such as legal charge, debenture, or personal guarantees.
Guy Lachlan – senior associate at Clough & Willis – said: “Despite interest rates being at an all time low, many people are finding hard to access affordable finance, so family-style loans do have a place, but it’s essential that all parties protect themselves and are aware of the terms that ought to be agreed. If they don’t, they risk costly arguments – both financially and emotionally. It is important that it be seen as a commercial undertaking so that good relationships are not spoiled.”.
