Creative Business Financing Options: Friends and Family

in Forum: Startup Funding

Source of this discusssion: /articles/1226/1/AT_Creative-Business-Financing-Options-Friends-Family.asp Page description: Blood can be thicker than water in your search for startup capital funding. Family and friends can be a great source for bootstrap financing. They’ve got a vested interest in your personal success, and they may be willing to take a chance on you that no bank would. But with loved ones, you’ve got to structure any financing for your small business very carefully – and understand that the future of the relationship may ride on the success of your new venture.

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Oct. 17 2006 at 1:19 PM
Posted by: JoeCT “Quote Reply
Great article on the business and relationship issues involved with raising money from family and firends. Can't agree more on getting an attorney to draft some documentation for everyone to sign. This will avoid confusion later on about what was promised if the venture was a success and what happens if the venture fails. Those relationships are important, don't listen to anyone who says, "We don't need an attorney, we can just write up something ourselves." There are too many issues involved. Even though it is family and friends, you have to treat it like a business arrangement, because that is what it is, plain and simple. jbl@angel-and-venture-capital-guide.com
Oct. 18 2006 at 6:08 PM
Posted by: davenny “Quote Reply
My personal feeling is if you cant sell a "finacial instituation" or Venture capital firm on your idea you shouldn't do it....because how are you going to sell your future customers into buying your products or services.....dont go the "easy" road of getting money from family and friends....let them be your cheerleaders not your board of directors. Erik www.usspin.com www.unitedbusinessalliance.com
May. 07 2007 at 7:55 AM
Posted by: MediaFairy “Quote Reply
Based on my experience as a SCORE volunteer working with start-ups, it's not necessarily about not being able to "sell" the financial institution or venture capitalist. They simply don't loan 100% of your start-up needs, expecting you to have some personal equity invested, and typically around the 25-30% mark. If friends and family are to be the source for some of that 25-30% (and they usually are), legal documents will protect everyone from he said/she said. If you're the lender, determine right up front what will happen if the loan is not repaid. The last caveat: Never loan more than you can afford to lose. "The Media Fairy" Carole Holden Gelmtree Advertising "Your advertising doesn't have to be expensive or complicated to be effective. Ask for your free slice of Advertising Pie."