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Borrowing Startup Funds From Friends and Family

This is a very tricky option for any entrepreneur. It takes a lot of effort to start a business from scratch and to bootstrap it until you start enjoying the profits. Borrowing money from family and friends can either help you grow or attract a slew of problems for you. It all depends on how well the business will perform from the start. Being a startup entrepreneur can be mind boggling especially if you lack experience. It takes a very determined and brave heart to start something you don’t even know whether it will pay or bring you on your knees financially. All in all, success comes to those who are not risk averse.

It is crucial to have a very good plan of how to raise the startup capital for a business that needs upfront cash. Anyone wishing to start a business must keep in mind that borrowing means paying back regardless of the outcome of the business. If you decide to raise capital by borrowing from your family and friends use the following tips.

  1. Honesty

Honesty is a very important factor in business and life in general. It defines who we are directly. Borrowing from friends and family means putting your personal relationship in jeopardy in case of failure. It is wise to ensure that the lender being your friend or a member of your family knows all the risks involved beforehand.Afterall if you have a good personal interaction with them they will take the risk since they believe in you.

Do not condescend to them; listen to their opinions with an open mind. You may learn something worth to help your business besides the capital.

  1. Good planning

In business you must be well organized to succeed. As a borrower you must have a payback mechanism in mind and know where you want to invest the cash you raise. A business plan will come in handy when your ship sails. Timing is essential as it will give your funder some time to think about the risks involved before they commit their cash to your business.

  1. Keep it professional

Some people take advantage of their family and friends which result in fraught ruined relationships. This can be catastrophic especially when money is involved. Professionalism in borrowing is essential. You can do it by requesting the borrower to explain the terms and conditions involved in lending the cash. It will help you set up standards and agreements. Ensure that everything is put done in paper and signed by both parties to adverse complications that may arise in future. The key to professionalism is self-discipline.

─ May 13, 2016