Kiwi startup aims to reduce family lending woes

The business will aim to help families avoid disputes over loans. Photo/iStock.

Lending to family members can be fraught with risks but a new business is aiming to reduce the down-side by providing a documenting and loan tracking service.

Former Deloitte partners Paul Frampton and Paul Gadd have set up Family Loans - an online service which helps families put together a loan agreement and then track repayments and interest until the debt is repaid.

Frampton said the pair came up with the concept on the back of concerns about the number of people having to take reverse mortgages and because of the problems that can arise through lending within a family.

"It was a combination of those two things."

Frampton said a growing number of asset rich but cash poor retirees were taking out reverse mortgages to release cash by borrowing against their house.

The debt is then paid off when the person sells the house and moves out or by their estate upon death.

But Frampton said interest rates tended to be quite high and it could eat into family inheritances leaving little for descendants.

Lending within a family was often cheaper but Frampton said many problems arose because expectations were not set down before the loan was made.

"Quite often loans just aren't documented and end up being open-ended. Quite often it's hard to get the money back and this causes friction."

While legal documents could be draw up with a lawyer Frampton said lawyers often did not have the capacity to ensure it was executed.

Frampton and Gadd's business charges a $2000 set up fee to help set up the loan and an annual admin fee of $300 to manage the loan providing online statements to both the borrower and lender to keep them updated.

Because of the fact it is kept track of by an independent entity - it can be looked at and verified and because it is quite clear who is lending what and when - all of those awkward family moments should be solved because it is transparent - not hidden away.

Paul Frampton

Frampton said the system could be used by children lending money to their parents or by parents wanting to lend to their kids.

A loan to parents could be secured over their family home with a guarantee they would not be forced to move out.

While a documented loan to children could allow parents to ensure equity across their children for the future.

Frampton said interest rates were set by the family which could choose to charge some interest or no interest at all if they wanted.