When the time comes to finally have the conversation with someone you’d like to loan money from, you can’t just jump right to the question itself. You need a little finesse.
First of all, you need a Lead-In -- something to start the conversation or to move an existing conversation into a place where you can potentially ask someone for money.
Try something like:
“I’ve been struggling with the math of how I’m going to pay for classes this year, and I was hoping to talk to you a potential solution.”
“My business partner and I have a great food truck idea. We’ve done all the research to make sure it’s a good fit for our market, but we’re not sure yet where our funding is going to come from. Can I talk to you about potentially funding part or all of it?”
“I got a new job outside of town, but the commute is a killer. My car’s been having lots of problems lately and I’m worried it’s on its last legs, but I don’t really have the money to buy a new one outright. I’m looking for some help on that front and wanted to get some advice from you about this.”
Second, you need a Rationale -- a good, solid reason you can give someone for why you need the money, and why you came to them specifically.
You don’t have to go into anything you’re not comfortable talking about, but you still want to make sure that you’ve got a reasonable explanation for why you’re asking them specifically to loan you money.
Here are a few:
“I’d like to change careers, and I think attending code school will help me do so. With a software developer job I’ll have a solid income, but at the moment, I’m going to need help paying for tuition.”
“The food truck’s going to be a lot up front. After we get it up and running, we’ll be able to cover it bit by bit over the course of the next year. But for the moment, we need a little bit of help.”
“I’m a bit too young to have the kind of credit I need to get a good loan through a dealership, and I don’t have a credit union nearby that I could go through. So I was hoping to borrow the amount I need to buy the car through a personal loan, instead.”
And lastly, you need to make a Specific Ask itself -- this is a clear, concise request in which you state both the specific amount of money that you’d like to borrow as well as the fact that what you’re asking for is a loan, and not just a gift.
Some examples of this include:
“Would I be able to borrow the money for the $10,000 tuition from you? I can pay you back at banking interest starting as soon as classes end, and as soon as I get a solid job, I’ll pay you back the rest in a lump sum.”
“We’d like to ask you to lend us the amount we’ll need to purchase the truck and cover some more of startup costs. We’ll pay you back the full amount within 8 years, at a rate that sounds reasonable to you. What are your thoughts on this?”
“Would you be willing to loan me the full amount for the vehicle? With the new job, I can easily afford $250 monthly payments, so you’ll be paid back in full in 5 years. I’m happy to figure out an interest rate together with you. How does that sound?”
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Here’s a checklist you can (and probably should) go through any time before you ask another person you know to lend you money:
☐ Have I decided who I’m asking to loan me money?
When you’re trying to decide who you should borrow money from, it helps to start with a list of everyone you know who could conceivably lend to you.
To create this list, think about who is already supporting you, with time, money, or emotional support, or who has supported you in the past.
Think about some big milestones from your life (like getting your first job, going off to school, or buying your first car); who do you remember being there for you during these moments? Who do you turn to when you need advice?
The people who support you during these times may be willing to support you financially or may know of someone else who could help.
☐ Do I have a good reason why I’ve chosen this specific person?
Remember, you want to be strategic about who you’re asking to lend money to you. Don’t just pick the richest person you know, think about what your personal ties are.
Make a list. Once you’ve created your list of potential lenders, think about who you know that can afford to make the loan, and that you have the right kind of relationship with; the kind of relationship that isn’t going to be adversely affected when money enters into things.
☐ Do I know how much of a loan I’m asking for?
If you haven’t yet decided on an exact number to ask for -- even if you’re not sure precisely how much you need to borrow -- it’s time to do so.
Even if the loan number itself is more of a ballpark figure, when you’re having the conversation, you want to give the other person an exact number. It’s kind of like a job interview -- if you give somebody a range of money to offer you rather than a specific amount, they may gravitate to the lower end of that range.
☐ Do I know what I’m going to tell them when it comes to why I need to borrow money?
You want to have a clear answer prepared for this question, and make sure it’s an honest one.
For example, if you need to borrow money to buy a new vehicle so that you can continue getting to work on time, just say all of that. That’s a simple answer that almost anyone can sympathize with.
Honesty is important here in order to build trust with your potential lender. If they get the impression that you’re trying to obscure any part of why you need the loan or how you plan on spending it, they’re going to get cold feet pretty quickly.
☐ Do I have a plan in place for paying the lender back, and is it realistic for me?
An easy way to show your potential lender that you're serious about repaying the loan is to give them concrete ideas of how you are planning to pay it back.
Part of this is what kind of a monthly payment you think you can afford to do, and how soon you expect to start paying it. Once you’ve figured this out, it’s easy to calculate how long it will take you to pay the lender back at this rate, which you can share with them up front.