A loan is a transaction whereby one party, the lender, advances money or goods to,
or on behalf of, another party, the borrower. The borrower agrees to repay the debt
in full. Contracts negotiated between individuals and commercial lending institutions
are formal loans. An informal loan is one negotiated between individuals and the lender is not a commercial lender.
If a bona fide loan exists, the income received is not income for SSI purposes. (See
Six of eight states in the Atlanta region require any contract to be in writing that
cannot be performed within one year from the date of the contract, i.e. Alabama, Florida,
Georgia, South Carolina, Tennessee and Kentucky.
North Carolina does not require a fixed time within which an oral loan must be
performed; rather North Carolina specifies that money lent pursuant to a contract
that fails to specify a time for repayment is “payable within a reasonable time.”
The State of Mississippi requires the contract to be in writing if not performed
in fifteen months from the date of the contract.
An oral contract that, by its terms, precludes the possibility of repayment within
one year (fifteen months in Mississippi) must be in writing.
In some cases, an oral contract that does not preclude the possibility of performance
within the time specified by each State could be enforceable. In addition, full performance
within the time is not required, but rather performance within the time specified
must be possible. In other words, if a person must pay $1,000.00 back in twelve months
but for unforeseen circumstances takes an additional 3 months to pay this does not
negate the establishment of the cash loan. It is reasonable that the $1,000.00 owed
is payable in twelve months and could have been paid back.
Written Loans – An oral agreement that specifically requires performance, which will exceed one
year, or fifteen months for Mississippi, must be in writing.
Any informal written loan agreement is bona fide and legally binding in all states in the Atlanta Region
if it includes the following components:
Borrower’s acknowledgment of obligation to repay (with or without interest), and
Timetable and plan for repayment (e.g., borrower plans to repay the loan when he receives
future anticipated income), and
The borrower’s express intent to repay by pledging either real or personal property
or anticipated income.
For formal loans (i.e. commercial loans), follow the instructions in (SI 01120.220E).
If an SSI claimant alleges an oral loan agreement, obtain statements from all parties
involved (SI 01120.220D — SI 01120.220G). Use the SSA-2854 or SSA-2855 to document informal loans.
NOTE: These forms do not establish a “written” loan. The forms document the parties' allegations
about the loan.
The loan is not bona fide if the makers or parties knowledgeable of the loan do not provide statements;
or if one or more of the components in SI ATL01120.220B.1, – SI ATL01120.220B.3 above are missing. A loan not considered bona fide is income and not a resource.
A valid loan can also exist where the lender advances money or goods directly to a
third party on the borrower’s behalf. The borrower is still liable to the lender even
though the funds did not actually change hands through him or her.
Two examples illustrate this concept:
Example 1 - The SSI recipient’s father advances him $3,000 for an automobile and the recipient
agrees to repay the father at a rate of $100 a month. If the SSI recipients name is
on the automobile title and the father gives the money directly to the automobile
dealer, it is still a bona fide loan.
Example 2 - The SSI recipient owes the electric company $100. The claimant must pay the bill
immediately to avoid disconnection. Since the recipient does not currently have the
funds, the recipient’s brother pays the bill with the understanding the recipient
will repay him at a rate of $20 a month from her SSI check.