There are many ways to raise funds for a small business you are planning to open. You can get a loan from a bank, meet with investors or dip into your own personal savings account. If you have maxed out every other option and are still looking for a way to raise some funds, one option to resort to is asking your family members and friends for assistance. There are numerous advantages to pursuing this course of action, but there are plenty of downsides as well. Make sure you go about this wisely so that you do not ruin any potential relationships.
Going About Asking a Loved One for Money
It can be awkward to approach a close friend or family member for money, but if you do it wisely, then there should be no issues. Here are some of the steps to follow for when you want to ask someone for a loan.
- Schedule a good time: Depending on what your relationship is with the person, you should schedule a time that does not feel forced. You could meet the individual at his or her house or at a nearby café.
- Bring all materials: Bring all necessary documents and information related to the business you want to start. This meeting is when you will want to lay out your business plan.
- Explain risks: Risks are associated with any business, and you want to make sure all investors understand what they are getting into.
- Give them time to think: You do not want to force someone to come up with an answer on the spot. Give the person time to think about your proposition, and allow them to take any materials home so that he or she can review them.
- Get everything in writing: If a friend or family member does decide to invest, then you will want to make sure to get the agreement in writing. This is also beneficial to the investor because you two have a legally binding document stating how the investment will be paid back. This can also state if the investor will be a shareholder, limited partner or member of a limited liability company.
You do not want to pressure a loved one into giving you money, and you do not want any hard feelings if it takes a little longer than anticipated to pay the person back. These steps ensure that everyone understands what will be happening.
Benefits of Turning to a Loved One for Money
While some entrepreneurs will be hesitant about turning to family for help, there are some great advantages associated with it. For example, you do not have to sell yourself as much to a loved one. A family member or close friend will know if you can be trusted, whereas a bank will have no clue. Additionally, going to a bank for money means that you will have to abide by whatever schedules or interest rates the bank has. With loved ones, you can develop a more personalized payment plan that might be easier for you to make. Loved ones are also an excellent resource for when you have exhausted every other resource. If you have already gotten a loan from the bank and still need some upstart money, then family members can fill in the gaps. Finally, getting a loan from a loved one inspires a certain level of confidence. It shows that the people close to you believe that you can succeed. Support from loved ones can be an excellent resource if you ever start doubting yourself.
It may be a little tricky trying to get money from friends or family members, but it can pay off big time in the long run. It never hurts to ask, so schedule a time to meet with a loved one if you are looking for an investment.
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.