Issue with borrower not paying as agreed.

Hi ***, and thank you for reaching out! My name is Dolan, and I’d be happy to help with this. I carefully review each question and provide responses based on my years of hands-on experience as a lawyer.

It sounds like a complicated and frustrating situation you have. Before I get into specific advice, let me ask a few questions so I can get better information about this:

1. Do you have a signed agreement that includes the loan terms, specifically the 30% interest rate?
2. Have they provided any specific legal basis for claiming the interest rate is illegal?
3. Have they made any partial payments, or have the payments totally stopped?

These details will help me tailor my advice to your situation.

Thank you for clarifying. Here’s where things stand:
1. Promissory Note: The signed note is critical because it serves as evidence of the loan terms that were agreed upon. That will be key in enforcing the loan.
2. Usury Laws: These laws vary by state. They regulate the maximum interest rates lenders can charge. While 30% might exceed the legal limit in some states, there are exceptions…especially for loans made to businesses or high-net-worth people. The specific details of your agreement and the state where the loan was made will determine how this plays out.
3. Missed Payments: Their failure to pay as agreed is a breach of contract, regardless of whether they later decided the interest rate was too high.
A few more questions:
- Which state are you based?
- Did the promissory note specify that the borrower is waiving any usury defenses, or include a choice of law provision?

Thanks for sharing that. In California, usury laws generally cap interest rates at 10% for non-exempt loans, but there are significant exemptions. For example:
1. Loans to Corporations or LLCs: If the borrower is a business, the usury laws often don’t apply.
2. Sophisticated Transactions: Loans involving larger amounts, especially with professional investors, are less likely to fall under strict usury limits. If your promissory note included a choice of law provision (California law) but didn’t specifically waive usury defenses, it could complicate things slightly. But, the borrower’s failure to make payments is a clear violation of the contract.

Exactly. Even if they argue the 30% interest is unenforceable under usury laws, that doesn’t invalidate the principal amount of $200k they borrowed. At a bare minimum, they are still obligated to repay the loan amount you provided.
Also, if they willingly agreed to the terms, courts are often reluctant to allow a borrower to benefit from the loan and later escape their obligations entirely by claiming usury.
Here’s what I suggest as your next steps:
1. Demand Letter: Send a formal demand for payment, restating the terms of the promissory note and notifying them of their default. This often gets things moving.
2. Negotiation Options: If you want to avoid litigation, we can explore restructuring the debt at a lower interest rate to keep things amicable.
3. Legal Action: If they continue to refuse to pay, filing a lawsuit to enforce the promissory note may be necessary.
Does that align with what you’re looking to do?

Understood. A lawsuit is certainly an option, but let’s try the demand letter first since it’s a cost-effective way to demonstrate you’re serious.
I can help you draft a demand letter that lays out:
1. The loan terms from the promissory note.
2. Their payment history and breach of contract.
3. A timeline for repayment before escalating to legal action.
How long are you willing to give them to respond before moving forward with a lawsuit? 10-14 days is typically reasonable.

Perfect. I’ll draft the demand letter with a 14-day deadline for payment. Once you send it, keep an eye out for any response. If they ignore it or refuse to pay, we’ll discuss filing a breach of contract lawsuit.
Out of curiosity, is this start-up based in California as well? That would simplify things for filing in court.

Got it. Since they’re in California, filing a lawsuit in state court would be straightforward if it comes to that.
As for their equity proposal, you’re well within your rights to refuse. If equity wasn’t part of the original agreement, they can’t unilaterally change the terms now. The demand letter will reiterate that repayment of the loan (not equity) is the only acceptable resolution.
If you’d like, I can also include language in the demand letter rejecting their equity proposal to make your position crystal clear. Would you like that?

Understood. I’ll make sure the demand letter clearly states your position and outlines the legal consequences if they fail to comply.
Once the letter is sent, we’ll monitor their response. If they still refuse to pay, we’ll move forward with a breach of contract lawsuit. Filing a suit would likely result in either a court-enforced repayment plan or a judgment against them, which could allow you to collect the debt through other means, like garnishing their accounts or seizing assets.
One more thing - would you like me to include any interest accrued since they stopped making payments, or would you prefer to focus solely on the principal amount for now?

That makes sense. I’ll calculate the accrued interest based on the agreed-upon 30% rate and include it in the demand letter. This ensures you’re asserting your full rights under the agreement.
The demand letter will also reserve the right to modify the claim if necessary, which leaves you room to negotiate later if you choose to. I’ll have the draft ready soon.
In the meantime, one last question: Do you have documentation of the payments they made in the first six months? This will strengthen your case by showing they initially honored the agreement.

That’s excellent. Hold onto those records since they will be crucial if we need to escalate. For now, you don’t need to send them, but if this moves to litigation, we will use them as evidence to show the borrower’s acknowledgment of the loan and terms. Once I send you the demand letter draft, review it carefully and let me know if there’s anything you’d like adjusted. After that, send it via certified mail or another method that provides proof of delivery.
Are you comfortable proceeding this way?

Great. I’ll send over a proposal in the platform for $*** to draft the demand letter. Once that’s paid, I’ll get this drafted and send it for your review. Once we’re good with the letter, I’ll send it. Once it’s sent, we’ll wait for their response and take it from there. You’re taking the right steps to protect yourself, and I’m here to guide you through this process.
If you’re happy with the advice I’ve provided so far, I’d really appreciate it if you left a review since it helps others know they can trust me with their legal concerns.

You’re very welcome. I’m here if you need anything else. Will send the proposal shortly.