Financing -- Loans/loans

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QUESTION: Do I need a license to loan money in Virginia?
Loans would be short term, unsecured, under $500, with interest charged.

ANSWER: Probably not, unless you are going into the loan business full time and plan to advertrise, etc.

I checked the internet for Virginia state usury statutes, and it reads as follows:

Virginia Usury Laws

The Commonwealth of Virginia has established a complicated system relating to appropriate interest rates which are permissible in the Commonwealth. Through this article, you are presented with an overview of the different statutes and regulations that come to bear on lending practices and interest rated in Virginia.

When it comes to purely consumer loans in the Commonwealth of Virginia, the generally recognized legal interest rate that has been established is 8%. This is the legal rate of interest on a personal loan that does not involve collateral and that does not involve a companion sale of goods.

If a sale of goods over $500 is involved, and financing is necessary to undertake the sale, the Uniform Commercial Code governs the applicable interest rate that will be permitted on such financing. Because the consumer is getting something for value, there tends to be a bit more flexibility when it comes to the interest rate that can be permitted on such a loan. However, the statute does establish loan rate parameters that must be complied with in regard to a sale of goods.

When it comes to corporations and business loans, there is no usury limit in Virginia. The theory is that in these types of situations, the owners, operators or managers of businesses are better able to make educated decisions regarding loans and interest rates than can consumers involved in personal loan transactions.

Additionally, if a loan is made to an individual, but is classified as being a so-called “investment” or “business” loan, such a loan will be exempt from the usury laws of the Commonwealth. As might be imagined, many loans that in other states might be deemed “personal” are classified as being for investment or business purposes in order to avoid the application of the usury laws of the Commonwealth.

Of course, the ability to classify what otherwise might be considered a personal loan as being one for investment or business does have the potential for abuse. Therefore, these types of loans do tend to be subjected to greater scrutiny to ensure that the classification of these loans for business or investment purposes is being done for some sort of legal and bona fide purpose.

The statutes governing interest rates, loans and lending practices can be found in the Code of Virginia at Title 8.

Nothing in this article should be construed as providing you with legal advice about loans and financing. If you have any specific questions, you should consult with a lawyer. Additionally, we do take all reasonable steps necessary to keep the information and materials up to date and accurate. However, the statutes governing loans and interest rates in the Commonwealth of Virginia do change.


Simple loan documents are available on line, but you might be advised to hire an attorney to draft them for say $50.00 and charge that to the borrower as a doc fee.

Good luck.

Please let me know how it goes...

---------- FOLLOW-UP ----------

QUESTION: If I charged more than the "generally recognized" rate of 8% is that an issue?

Thanks for your help!
-Kaye

Answer
It could be a problem, as it appears to be in excess of the Statutory Usury Rate.

If you are concerned or if you believe that the borrower may be litigious, I would try to talk to a local attorney specializing in lending.

Just a reminder for the future, try to ALWAYS structure any loans as COMMERCIAL LOANS, not consumer loans, which means that the loan should be for a business purpose, not a conusmer purpose.

Also, as a caution, never make a loan on someone's residence.

Good luck.

Also, as a reminder, if these answers are helpful, please rate my responses.  I would appreciate your nomination and favorable ratings.

Thanks.

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