So you've finally summoned the courage to ask Uncle Louie for a business loan, or better yet, your best friend has said, "I think what you're doing is great. I'd like to lend you money if you need it." That's great. But before you cash that check, you should consider how to balance your business interests against your personal ones--that is, how you'll stay friends after money has entered the equation.
When you're talking about relationships, money has a way of complicating things. So before broaching the subject to anyone you know, you need to get a fix on who would be the right type of lender.
"Basically, the money has to be money the person can afford to lose," says Azriela Jaffe, founder of Anchored Dreams, a coaching and consulting firm in Lancaster, Pennsylvania, and author of Let's Go Into Business Together: 8 Secrets for Successful Business Partnering (Avon Books). Otherwise, you'll be working under the additional pressure that you're putting someone in financial jeopardy.
You also want to choose someone who's comfortable discussing money issues with you and comfortable with a certain amount of risk. Linda Stern, a financial journalist and author of Money-Smart Secrets for the Self-Employed (Random House), suggests testing the waters first, because, unlike the adage, there might be harm in asking. Be subtle: Start a conversation about a person who launched a business with her mother's help--if the reaction is positive, proceed with the request.
It's important to prepare the same financial documentation and business plan you would use if you were approaching a bank officer. Just because you're getting money from a friend or relative doesn't mean you're any less serious about the venture.
Perhaps most important is knowing when to back off. "If you have to beg, cajole or even push hard to convince a friend or relative to lend you money," says Jaffe, "it's a bad sign. The demands of a grumbling relative or friend will almost surely doom the business and personal relationships."