Many people and businesses go to and even prefer private lenders when it comes to borrowing money.   Indeed, there can be many benefits over the use of traditional lenders.  Banks, for instance, that have lengthy and detailed applications, approval processes and little flexibility in negotiating or creating loan terms, can be unattractive or even unavailable options if there is an immediate need for capital.   Private lenders, on the other hand, can have much greater flexibility.  There are, of course, rules and laws governing the limits and types of loan private lenders can make, but that’s another discussion.

For all those who lend or borrow, it seems that there is a fundamental problem in your business operations.  You are neither giving nor receiving receipts for payment.  This seems to be a recurrent theme in South Florida to such a degree that I realized it needed addressing “out loud.”  In Florida, if your loan has collateral securing the repayment, you are obligated, as a matter of law, to give a receipt.  Not only that, the receipt has to state what amount was paid and even whether that payment was towards interest or principal.   It also has to be signed.  You do have the option to do this once a year, though, and make it an annual statement of payments so as to cut down on some of the paperwork.

Even if the lender is not required by law to furnish the receipt, the instances of private lenders who do not provide receipts has led to a host of litigation that could be otherwise unnecessary.  When trying to collect, there is no mutual record between lender and borrower confirming what was paid and otherwise acknowledging what was paid.  Now, it becomes more time-consuming and expensive to prove what was or was not paid.  Banking records have to be located and relied on in the public forum of the court, the borrower can dispute the amount claimed by arguing that not all of the payments were deposited into a particular account, or a complete record of the payments is unavailable because the borrower was making cash payments.   What’s worse, as a practical matter, is that some lenders and borrowers genuinely do not know how much money has been paid or what remains outstanding.  

So, whether collateralized or not, it is just good business to furnish receipts for payment.  Not only will it create a clear record for both borrower and lender of what it paid and what remains owing, but it can save significant time or money if the debt ever ends up in litigation.