Borrow money from family or friends

What is a private loan?

Borrowing money from family or friends is also called a private loan. Such a loan comes about without the involvement of a bank or other lender.

Arrangements for a private loan

Arrangements about the private loan are set out in an agreement (contract). You can draw up this agreement together. In the agreement, you must in any case state:

• The borrower and lender
• The loan amount
• The interest rate (or other compensation)
• The duration of the loan
• How you receive the loan. For example, by bank transfer
• How the loan will be repaid. For example, monthly or all at once

 You should also make agreements about: 

• What happens if the loan is not repaid
• (Interim) cancellation of the loan
• Early repayment
• What securities are given to the lender
• If you can use other types of credit during the loan period

Interest payments

By agreeing a market-based interest rate upfront, you avoid problems. You determine the level of the loan interest rate (in Dutch) based on the financial market at the time. An interest rate is reasonable if it is the same as the interest rate of a commercial lender. For example, the interest rate a bank charges for a similar loan.

Subordinating a private loan

You can subordinate a loan to other creditors. This often happens with a loan from family and friends. That loan then becomes a subordinated loan. You will then only repay it once one or more other lenders have been repaid. As a result, the amount of the subordinated loan is available longer than other loans.

Consider the solvency ratio calculation. This is the number which indicates what percentage of your balance sheet total is equity capital. The loan amount is counted as if it were equity capital. The amount of the subordinated loan improves your equity capital and therefore your solvency. This gives confidence to other financiers, which may also help you approach them for financing.

Think carefully about a private loan

With an informal loan, you borrow from someone with whom you have a personal connection. This is precisely why it is important to think carefully about whether you really want this. It can cause problems if you cannot repay the loan for a few months in a row. Consider beforehand whether your relationship can withstand this.

Help with business financing

KVK’s Financing Guide helps you find your way in financing your business. Do you still have questions? Call the helpline on 088 585 11 11 or ask an expert.