A BOLTON and Bury law firm have reported an increased demand in advice around family-style loan agreements.

The rise comes as many face financial insecurity due to the pandemic.

Clough & Willis, one of the North West’s leading mid-sized legal firms, has seen a rise of approximately 40 per cent in new enquiries over the past three months compared to the same period last year.

The popularity of loans between family members or close friends is growing month on month as some commercial lenders become more wary of the risk profiles of their clients – especially since the onset of pandemic.

Rising job insecurity as the furlough scheme and other government-led initiatives are set to wind down over the coming months have contributed to the rise.

Other factors driving the trend include the admin costs and charges, interest rates and security required by commercial lenders and relative inflexibility, compared with family loans.

Family-style loans typically take place within a family, between close friends or in an employer/employee situation.

The most common are lending money to to younger people who want to get on the property ladder, but there has also been an upturn in their use for bridging finance, for example to fund divorces and to set up new businesses.

Even in the context of a family loan, there is a need for contractual agreements to be in place in order to mitigate potential issues and disagreements once monies have been loaned.

The most popular services the firm is seeing are advising on the best legal structure, preparing loan agreements; and putting in place any security required such as legal charge, debenture, or personal guarantees.

Guy Lachlan, a senior associate at the firm, said: “Despite interest rates being at an all-time low, many people are finding it hard to access affordable finance, so family-style loans have a place. It’s essential all parties protect themselves and are aware of the terms that ought to be agreed. If they don’t, they risk costly arguments – financially and emotionally.

“It is important that it be seen as a commercial undertaking so that good relationships are not spoiled.”.