Sources Of Business Startup Capital – Approaching Friends And Family

Starting a business can be quite expensive. Options for financing are often seriously limited. Your personal assets, credit cards, and perhaps retirement fund have all been tapped, and you find that you are still short. Bank financing is notoriously difficult for a new business to obtain. Angel investors generally have pet interests, which your company may or may not meet. Thus, when it comes to finding startup capital for your business idea, you might consider turning to your family and friends to cover your needs. Borrowing from relatives may seem to be a fairly safe option. After all, they love you and understand you, and are interested in seeing you succeed. However, this type of arrangement can carry serious risks and pitfalls. What happens with your company can begin to affect your personal relationships with your loved ones.

When raising money from those you know, you must decide whether their money buys equity in the company, or whether it will be a cash loan. Both options carry their own risks. No matter which option you choose, it is likely that the people who put up money will feel that they have a vested interest in the future of the company. Giving them equity means that they have a legal right to be involved in financial decision making. Yet those to whom you owe cash will often feel that your decisions affect your ability to repay. In either situation, you may begin to feel that your investors are studying and second-guessing your every move.

Read the full article here: Finding Business Startup Capital

You must also consider the what-if factor. Some people are hopelessly generous and optimistic about investing, until something happens in their own lives that changes their financial picture. How will you handle it if Aunt Suzie suddenly needs that $10,000 to pay a medical bill, and you are unable to repay her? Be sure that your investors can take the financial loss in the event that the company fails and you are unable to repay the loan.

Open and honest discussion about the money, and the investor’s ability and willingness to permanently part with it, can go a long way toward preventing permanent damage to relationships in the event that the company fails. However, this is not the only consideration. If you choose to sell equity, then you must also have a frank conversation about the company’s future. There have been cases of investors blocking potentially lucrative deals because they were not comfortable with the risk involved. Make sure that your investors are on board with the way you plan to develop the company in the future. A business plan can help in narrowing your focus, and provide your investors with an understanding of your goals. Review it with investors you know just as carefully as you would with a banker.

Business is business, but when you’ve accepted money from friends and family, remember that they’re your loved ones first and investors second. Keep in mind their generosity and make sure they know the risks involved with providing money to a new business from the start. While having a written agreement between friends and family might seem silly, it’s a wise decision to take, as you’ll be treating these people with the same professionalism as anyone else with whom you might enter into a business transaction. Choose people who share your views and have similar opinions, and you’ll be set to have your business and still share Christmas dinner.