Funding Your Start-Up

When push comes to shove, friends and family are the ones to turn to.
Magazine Contributor
3 min read

This story appears in the January 2002 issue of Subscribe »

Once you've committed yourself to starting a homebased business, you've taken a major step toward being a full-fledged entrepreneur. You have to be passionate about what you're doing-otherwise, you might as well hang on to that 9-to-5 job and enjoy the security of a steady paycheck. So if you know exactly what you want to do and how you want to do it-i.e., you've done your research and come up with a plan of action-consider yourself destined for greatness.

I'm guessing, though, that you're still facing the obstacle of coming up with the money to make your idea a reality. This is one of the thorns in the side of every typical entrepreneur-typical in the sense of not having a huge inheritance or lottery winnings to fall back on. So that leaves you with the quandary of raising money.

There are many ways to approach this quandary. You'll of course want to determine whether you can tap into any available assets, such as savings accounts or retirement accounts and equity in real estate, but make sure you consult with a professional before you do so. The way most start-up entrepreneurs fund their new businesses, however, is by borrowing from friends or family.

On paper, taking out a loan from someone you know and trust (and who knows and trusts you) sounds like a great idea-and it is, but you need to approach it as a business transaction and take steps to ensure both you and your lender will be happy. It's very easy for emotions to get in the way of what should really just be a business deal. Accept money from your brother, for instance, and he may think he has license to meddle in your business decisions. That's why it's so important to put the terms of your loan in writing, just as you would at any financial institution. Get help from an accountant and an attorney in drawing up this document-don't guess about what needs to be included.

You of course don't want to treat your brother like the stuffy guy in the suit at the bank-he is still your brother, after all, so you shouldn't treat him like an outsider. In fact, as you start a business, you'll find you need the support of family and friends now more than ever-so don't forget to talk to them about what's going on in your business. But you'd be surprised at how quickly your business can take off if you have the necessary funding, coupled with wise business decisions. And once that happens, your family and friends will be there to congratulate you.

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