It’s income tax time which means, at least for some of us, that we’re due a refund. For others (like me), a payment is required. But what if you don’t have the money? It’s not exactly smart to stiff the Internal Revenue Service.  Instead, you might ask to borrow the money from someone you know.  Or someone you know might ask you for a loan.

If you’re in a position to help, be grateful.  Then be smart.  Understand the risks and understand how to do your best to avoid them.

RISK #1:  You transfer funds into your nephew’s bank account without discussing the terms of the loan and now you’re worried that he’ll take 20 years to pay it back.

RISK #2:  You’ve made the loan to your sister-in-law, and now you feel awkward seeing her at family gatherings.

RISK #3:  Your friend hits you up for a second loan and now you wonder if you should install an ATM in your driveway.

RISK #4:  You’ve helped out your former college roommate, and now he’s going skiing in Aspen.

RISK #5:  Your borrowing friend isn’t returning your phone calls or texts, and now you think you’ve lost both your buddy and your money.

I have some simple suggestions on how to avoid these risks.  My first tip is the most important. The initial conversation, when you’re being asked for money, is the prime opportunity to talk about your expectations.  That’s right.  I said TALK ABOUT YOUR EXPECTATIONS. When do they need the money?  When do they expect to pay you back?  Are you going to charge interest?  

Next stop in the conversation is to ADDRESS THE PERSONAL BUSINESS.  You’re allowed to ask why they need the money. Then assure the borrower that your financial dealing with them is nobody else’s business.  You will respect the privacy of the loan at all times, so future social gatherings need not be awkward.

If you’re asked a to make a second loan, rather than immediately reaching into your wallet, FIND OUT WHAT’S REALLY GOING ON.  Instead of continuing to enable this friend or relative, offer to help with a budget.  If they’re really in over their head, some practical advice might be a better investment than handing out more money.

When you find out your loser roommate is skiing on your dime, tell him how you feel.  Send him a text: “I hope you had a terrific time in Aspen, but I must admit I’m concerned about you paying me back.”

And what if the borrower is avoiding you?  First you might want to figure out what is more important, the money or the relationship. If it’s the money, be persistent.  Ask for a partial payment or suggest a payment plan (which you should have done in the first place).  If it’s the relationship, also be persistent.  Just try to be kind about it.

Finally, if you’re still being ignored, it might be time for you to write off both the money and the relationship.  Lesson learned.