Friends and Family: And How to Keep Them That Way

So you are ready to launch your new business, but need about $20,000 to get if off the ground. So you turn to family and friends to help you out. Smart choice? Maybe….
StartupJournal looks at the ups and downs of borrowing money from family members to start a new business.
“Few start-ups qualify for bank loans or possess the prospects to attract venture capital. Many entrepreneurs must endure the discomfort (of)…meekly asking a family member for a loan to get off the ground. Sometimes a family loan works beautifully, with full understanding of the risks on one side and gratitude for the help on the other. Other times a family business loan is a prelude to a disaster.”
How should loans from family and friends be handled? Like any other business transaction. To begin with, it should be formal and in writing. They should also be based on a formal business plan.
Venture Capitalists make loans based on team members of the deal, but that is because those entrepreneurs are proven business builders. People who go to family members for loans and investments are usually unproven as entrepreneurs. And yet, many family members talk about “trusting” John or Jane and “believing in them”. Invest in the business only if it is a deal that can stand on its own merits. If you want to keep Thanksgiving pleasant, keep business as business and family as family.