Raising Money

Getting Money from Friends and Relatives

There's a reason we have friends and relatives. Beyond the pleasure we get from their company, they can be a good source of investment funds for those of us who want to start a business that we can call our own. In this article, we discuss raising money from friends and family.

Friends and relatives are often an important source of capital for your startup business.

Since they know you well, the terms of repayment are likely to be more flexible than those of strangers.

Make Sure to Keep Friends and Family Investing Formal

It's a good idea to prepare a formal agreement when a friend or relative is willing to invest money in your business.

This will make the relationship professional and will help to avoid future misunderstandings about how much was borrowed or when it should be repaid.

The investment can take the form of a direct loan or an equity investment. Review the previous section on debt versus equity financing to determine which arrangement will be best in your particular circumstances.

It's Business..It's Not Personal

Based on their personal relationship and their impression of your business judgment, friends and relatives may be willing to invest in your business even when others may not.

Beware, however. Because they know you well, they may wish to be more involved in the day-to-day operations of the business than you would like.

Friends or relatives may feel their investment entitles them to a routine say in how the business is run, even though you intend to repay the loan.

Ideally, you'll be able to borrow from friends and family or get them to invest in your business...with no strings attached.

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