Action Steps
The best contacts and resources to help you get it done
Put a financing facilitator to work
Small business loans from friends and family often go awry because they haven't been properly structured and administered. Sign up a service that will prepare documents, create repayment schedules, bill, collect payments and provide year-end tax statements.I recommend: Virgin Money (formerly CircleLending) has been a pioneer in private loan administration. The firm helps manage transactions such as small business loans between private parties — especially family and friends.
Offer equity in your business
If your business is a corporation or LLC, your funding source can become an equity investor, buying shares in your business.I recommend: At Intuit's MyCorporation.com web site, you can incorporate a business or form an LLC online for as little as $149, plus state filing fees.
Put your plan in writing
Even with family and friends, you need to put a business plan and request for funding in writing. Make it as detailed, professional and realistic as you can. Aim for full disclosure of all potential risks.I recommend: A terrific place to find help writing your plan is Bplans.com.
Arm yourself with finance facts
The better you understand the intricacies of financing, the more likely you are to succeed.I recommend: "Financing Your Small Business: How to Borrow Money from People Your Know (2nd edition)", is a helpful booklet produced jointly by SCORE and CircleLending. Download free at www.circlelending.com.
Tips & Tactics
Helpful advice for making the most of this Guide
- Plan your approach in advance. Think about your ideal loan and how it would work, and have those details at hand.
- Be yourself when you approach people for money. Don't try to suddenly come off like a big corporate executive. That's likely to be a turnoff.
- Don't borrow more than your friend or relative can afford to lose. Let them name the final amount. You don't have to get it all from one person.
- Agree on terms and formalize the agreement in writing. If it's a loan, this should specify an interest rate, repayment schedule and whether the loan is secured or not.
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