Seeking Capital? Ask Friends and Family--Maybe

After your own money, your friends and relatives are the next best source, but be cautious.
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Friends and family know you're trustworthy and competent, so lending money to you doesn't seem so risky. However, borrowing money from people you know has its own risks. The relationship can be threatened if your business fails and you can't repay the loan. Mixing money with friendship or love creates a potentially explosive combination. Some entrepreneurs assume that receiving a personal loan from a friend or relative means they can take their time paying it back. And some people are willing to put up money to get your business going, but they regard their investment as a free license to meddle in your affairs.

Excerpted from Starting a Home-based Business

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