How would you recommend handling loans to friends and family?

Hello,

I am providing a loan to a family member to help them grow their existing business.
How have you configured Tiller to recognise the outgoing transfer, and then the repayments?

Thanks in advance.

I haven’t encountered this situation myself. I think it depends on how closely and in how much detail you want to track the loan.

If all the outflows and inflows are from your normal checking account, then you might just set up a dedicated category for the loan.

If you want to keep track of the balance in the loan, then it might make the most sense to set the loan up as a manual account and then create manual transfers into and out of that manual account.

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We loaned money to a nephew. This is how we handled it.

We set it up like a normal 15 year loan with a fixed interest rate and a legal contract documenting the loan. I did not set the loan up as an asset in Tiller because I track the loan status in a separate Sheet as explained below.

To track the loan:

Payments are recorded into Tiller. They are categorized as Income: Loan Repayment. This isn’t enough to track the loan status so I also use another Sheet to keep track of other aspects of the loan including balance due, extra principal paid, etc.

The 2nd sheet is based on a loan amortization spreadsheet downloaded from the Internet (there are many). The sheet calculates a loan amortization schedule showing the total payment due by month and the amount received. It also breaks the payment and amount received into the amounts allocated to principal, extra principal paid and interest due / paid…

In that workbook, I created a “Monthly Statement” that I send to our nephew showing all the things you’d want to see on a monthly loan statement including the amount of interest he can claim on his taxes and the amount of interest, and time, he’s saved from extra principal payments.

This works for us because we only have one loan of this type and it’s easy to check the loan balance on the 2nd spreadsheet.

Hope this helps.

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This would be my approach. Getting a little more detailed, I can see arguments for setting the account up both as an asset or liability account… At first glance, setting the loan up as a liability account makes sense since that is how our other loan accounts (credit, mortgage, etc) are defined. Each payment/transfer from your family member would reduce the principle until the account zeros out.

However, it would be more correct to set up the loan as an asset, as you are the lender in this case. An initial transfer from your account(s) would fund the loan. Each payment from your family member would decrease the balance of the loan as a transfer-out transaction and increase your account balance(s) as a transfer-in transaction. Once the loan is fully repaid, the account balance will be zero. I would set up a transfer category named Loan Repayment or something similar for both of these payment transfers.

Also, while it may sound like common sense, always make sure the terms of any loan are in writing and signed by both parties, even if it is between friends or family.

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I landed here trying to figure out how to do the other end of this. If I were to borrow money from a friend or family member. Here is what I’ve worked out so far. Please let me know if I’m on the right track and what else I might be missing.

  • Setup a manual liability account with the amount owed
    • How do I record the initial inflow?
  • Record payments as either transfers or expenses
    • expenses if I want to budget for the payment. Transfers otherwise?
  • Manually adjust the balance of the manual account each month after the payment.

Another note / question is I think I did something wrong here or in some other setup because my cashflow for the year in my yearly budget and the change in my net worth don’t seem to line up. Any advice on reconciling this?

Hi @d2kagw,

There are some great suggestions here. Any of these helpful for you? I know for me, setting up a category to track the loan was the easy/simple way. I suspect it depends on your situation what is the best.

I do this same thing, pretty much just how you laid it out:

  • Setup a manual liability account with the amount owed

Yes

  • How do I record the initial inflow?

If it hits a linked checking account, then the transaction would show up there and be reflected in your checking account balance. If you’re keeping it in cash, then you can have a manual Cash account and add the balance there (or a manual Asset/Loan account). For my situation, the loan was spent right away, so there would be corresponding income & expense transactions and there wasn’t any increased asset balance.

  • Record payments as either transfers or expenses
    • expenses if I want to budget for the payment. Transfers otherwise?

The payments should be a regular expense transaction. You can use a generic “Loan Payments” category or create a category specific to each loan if you want to track/budget for them.

  • Manually adjust the balance of the manual account each month after the payment.

Yup!

I also use the Savings & Debt sheet to keep track of the payoff date, amount remaining, etc. but that’s completely optional.

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Thanks for sharing your workflow, @DerekP.