3 Tips for Borrowing Business Funding From Friends and Family (60-Second Video) Here's how to stay out of a potentially tricky situation.
Here are three tips about borrowing from friends and family for your business, as explained in the book Finance Your Business: Secure Funding to Start, Run, and Grow Your Business by the staff of Entrepreneur.
- It's important to treat friends and relatives as if they were any other investor. Insist on the same sort of legal documentation you'd prepare if they were a total stranger, as too many entrepreneurs make such loans on an informal basis.
- Next, secure a lawyer. Many states guarantee voting rights to an individual who has invested money in a business, which can create hard feelings. Make sure to check with your attorney before accepting any loans from friends or family.
- Finally, remember that debt may actually be better than equity. If someone lends you money, you only have to pay it back, with interest -- they can't tell you how to run your company. If someone buys stock in your business, however, they are legally your business partner. When in doubt, make it a loan, and pay it back as soon as you can.
Get more great tips by picking up book Finance Your Business, on sale now!