The requirement to have legal proof of the loan:
It is forbidden for a lender to give a loan without receiving a form of legal testimony of its occurrence. This applies even if the borrower is a Torah Scholar ]and is thus a trustworthy person]. Thus, one must either have a loan document signed by witnesses or the borrower, or have collateral given by the lender, or have witnesses witness the loan transfer. Nevertheless, the most praised method is through writing a document. [Despite the above, the widespread custom is to be lenient in this matter and not require any form of legal authentication when giving a loan. Some Poskim learn merit on this custom. Nevertheless, each person is to certainly be stringent upon himself in this matter.]
All loans must be legally authenticated by one of the following methods:
- Signed document of loan agreement [best method]
- Collateral given from the borrower to the lender. [i.e. Post dated check]
- Witnesses seeing the transaction
May one lend a person a small sum of money without using one of the above authentications?
- Example: Reuvein asked Shimon if he can borrow $1 for acan of soda. Must there be one of the above authenticating methods in order for the loan to take place?
The custom today is to lend small sums of money without authentication. Nevertheless, from the letter of the law, no differentiation is made regarding the amount of money one lends. Vetzaruch Iyun!
 Admur Halva 6; Michaber 70/1; Baba Metzia 75b
 The reason: As the borrower may come to deny the loan and hence come to transgress his obligation to pay. This is avoided if one is particular to receive a form of documentation or testimony regarding the loan. Now, since the lender has ability to do so, if he does not do so he transgresses the command “Do not place a stumbling block in front of your fellow”, as due to lack of proof, the borrower has ability to wrongfully deny the occurrence of the loan. [ibid]
 The reason: As we suspect the borrower may come to forget about the loan due to his preoccupation in Torah study and come to deny it. [ibid]
 The reason: As by a document, the exact amount of the loan is recorded, unlike by a collateral. Likewise one does not require searching for the witnesses to testify, as would be the case if one merely used witnesses without written testimony. [ibid]
 Aruch Hashulchan 70/1; Tzitzis Eliezer 7/47 in name of Divrei Malkiel “No one is careful in this today”
 Aruch Hashulchan 70/1; Tzitzis Eliezer 7/47 in name of Divrei Malkiel
The reason: As people know each other and trust each other. [Aruch Hashulchan ibid]; As the above requirement is only a Midas Chassidus. [Ritva, brought in Divrei Malkiel ibid]
 Shevet Halevi 10/268