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Tapping Friends and Family for Startup Funds

Make sure you cover your bases before accepting a loan or investment from a friend or family member.

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This story appears in the October 2009 issue of Start Up.

Q: I'm planning to start a retail boutique. I have some savings but not nearly enough to get the business off the ground, and my credit isn't good enough to get a loan from any local banks. A favorite uncle has offered to give me some money to help me get started. Do I have to do anything "legal," or is it OK to just take the money?

A: With the economy in the grips of a major recession and credit crunch, many entrepreneurs have little choice but to tap friends and family members for their startup capital. But that doesn't mean you should treat them like "friends and family."

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