Don't Lend Friends and Family Money! Why?

I seem to be arguing with people a lot more these days.  In the past, I didn't argue often because I didn't care if I managed to change someone's opinion. What did that earn me? Why waste the effort?  Now, I argue a lot more.  I still don't care whether or not I convince a person that my side is right, but I have found that arguing tends to refine my own ideas and help prevent myself from falling prey to still-life mistakes.

Recently, a friend of mine said he, as a rule, doesn't lend family or friends money (I mean more than the amount required to buy a few drinks at the bar).  I strongly disagree with this rule.  In my own experience, I have often been a borrower from friends and family.  As a personal rule of my own, I repay debts and do so with interest. 

Now, I understand that some people might be afraid that if the debtor can't pay back the creditor, it could put strains on the friendship – a real possibility.  On the other hand, the borrower is certainly going to be grateful to the creditor, his or her friend, for showing a vote of confidence in them.  I think, in terms of the friendship, the effects of fear and gratitude nullify each other.

A much more poignant example is in funding a business venture.  If the person is a genuine friend of mine, I generally assume are more likely to pay me back.  The instinct of reciprocity is much stronger amongst friends.  Now, certainly, if I think the person is incapable of pulling off their chosen venture or that the chosen venture is bad, I will obviously say no (the former case being a much bigger deal-breaker than the latter). 

If I do think the venture is bad, I will explain why.  Actually, saying “I don't lend to friends and family” when you honestly mean, “I think your idea is bad” is a pretty shitty thing for a friend to do.  If my friend is completely smashed after a night spent with Jägermeister, I wouldn't let him drive home.  Same rule applies. If you value the well-being of your friends, you should step up and explain why you think their idea is bad, even if it momentarily offends them.

Also, I expect my reward for the risk taken to be commensurate with that which would be given to me by an anonymous entrepreneur.  Maybe that's due to the influence Atlas Shrugged had on me, but clearly, I am still taking a risk and should be compensated.  No, I am not going to lend my friends money at the bar and then calculate the interest owed two day's later.  That would be offensive and cheap in the bad sense. I didn't really forgo any possible profit in those two days.  That money was in my wallet or on my credit card.  In both cases, the amount being so small, it wasn't on it's way to my brokerage account.

I guess what I am trying to say is, “Don't let friend do dumb things without objecting.” If a friend has a good idea and they are capable, it's a good investment.  If the idea is bad, tell them.  If the friend has a good idea, is capable, and is not respectable….why are they your friend?