How To Raise Money From Your Family to Finance Your Small Business
At some stage in life many of us dream of running their own small business. What keeps many entrepreneurial minds from achieving this is the lack of start-up funds. Running a business takes money, time and dedication and having a healthy dose of all three is often a rarity. Banks are very cautious handing out business loans to you if you can’t show them enough equity as back-up. Therefore it is hard for many to raise the money to start out. But before you throw out your big ideas and plans of running your business let it be known that it is possible to get started, even if you currently lack the financial capital to do so.
Reality bites
Before you plan on raiding your in-laws savings funds think about the situation you are in. Reality is often hard to look in the eye but by doing so you’ll have a much better chance of actually raising the collateral in the first place.
What is the worst case scenario that could happen to you? How will this impact your life and that of your generous financial sponsor. On the contrary, how good can things turn out to be if the best case scenario would eventuate?
By being realistic you stand a better chance at actually stepping through the financial milestones of your plan.
Planning is essential – start with a small business budget
If the idea of a financial business plan is alien to you think about the ways your small business can be impacted by the lack of a plan. You need clear defined milestones that will allow you to pay back the borrowed money over time.
No business owner in their right mind can do this without a proper plan that sets clear boundaries about spending and saving money in a start-up business.
Get an unbiased opinion
Since you dreamed up the idea of your business it doesn’t mean it will become a viable enterprise. Your bank manager can be a good source of reality, especially since his job is to look for the hidden traps that could be the end of your dream. If he finds the slightest indication there is something wrong with your plan, he will not give you a small business loan.
Another idea is to run your business plan past a good friend who already runs their own business. That person will be a good feedback source right from the trenches.
Who will be the lucky sponsor for your business loan?
If you think about borrowing a small business loan from a family member or friend you should have people in mind that will fit the description of a good lender. Look for a person that matches the following “ideals:”
- Needs to be able to deal with the worst case scenario
- Should be fair and reasonable
- A person you can trust without a doubt in your heart
- Someone you can do business with for years to come without getting on each other’s nerves
No matter how much capital you have to raise, ending up in a bitter family feud over it isn’t worth the paper it’s printed on.
What is your exit plan?
Sometimes we can plan all we want and yet everything goes wrong. The same applies to potential business relationship between you and your financial sponsor. No one knows what’s around the corner. Therefore you need an exit plan to deal with the possibility of not getting the money – even if it was promised to you in good faith.
Expect the unexpected
The best way to deal with any money situation is to expect the unexpected. There is no way you can plan for something and then expect everything to go to plan. It isn’t happening that way. Be prepared for any and every eventuality and you will be able to sleep better at night.
Please don’t mess up a relationship over money – it isn’t worth the hassle. If you place no expectations on your sponsor you will be able to keep the relationship intact should things take a turn for the unexpected.
It’s payback time
Whenever you borrow money, there comes a time when you have to pay it back. Due to the nature of lending a small business loan from a friend or family member you would have set out milestones by which you pay back the money lent to you.
Do it! No matter what, stick to your promises and honor your agreement.
Timothy Ng wrote this article to inspire entrepreneur wannabes that finding capital for their dream business is not that hard. Tim is a personal finance writer for Credit Card Finder who has passion for making the topic of finance easier understand for everyone.
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How To Raise Money From Your Family to Finance Your Small Business
At some stage in life many of us dream of running their own small business. What keeps many entrepreneurial minds from achieving this is the lack of start-up funds. Running a business takes money, time and dedication and having a healthy dose of all three is often a rarity. Banks are very cautious handing out business loans to you if you can’t show them enough equity as back-up. Therefore it is hard for many to raise the money to start out. But before you throw out your big ideas and plans of running your business let it be known that it is possible to get started, even if you currently lack the financial capital to do so.
Reality bites
Before you plan on raiding your in-laws savings funds think about the situation you are in. Reality is often hard to look in the eye but by doing so you’ll have a much better chance of actually raising the collateral in the first place.
What is the worst case scenario that could happen to you? How will this impact your life and that of your generous financial sponsor. On the contrary, how good can things turn out to be if the best case scenario would eventuate?
By being realistic you stand a better chance at actually stepping through the financial milestones of your plan.
Planning is essential – start with a small business budget
If the idea of a financial business plan is alien to you think about the ways your small business can be impacted by the lack of a plan. You need clear defined milestones that will allow you to pay back the borrowed money over time.
No business owner in their right mind can do this without a proper plan that sets clear boundaries about spending and saving money in a start-up business.
Get an unbiased opinion
Since you dreamed up the idea of your business it doesn’t mean it will become a viable enterprise. Your bank manager can be a good source of reality, especially since his job is to look for the hidden traps that could be the end of your dream. If he finds the slightest indication there is something wrong with your plan, he will not give you a small business loan.
Another idea is to run your business plan past a good friend who already runs their own business. That person will be a good feedback source right from the trenches.
Who will be the lucky sponsor for your business loan?
If you think about borrowing a small business loan from a family member or friend you should have people in mind that will fit the description of a good lender. Look for a person that matches the following “ideals:”
· Needs to be able to deal with the worst case scenario
· Should be fair and reasonable
· A person you can trust without a doubt in your heart
· Someone you can do business with for years to come without getting on each other’s nerves
No matter how much capital you have to raise, ending up in a bitter family feud over it isn’t worth the paper it’s printed on.
What is your exit plan?
Sometimes we can plan all we want and yet everything goes wrong. The same applies to potential business relationship between you and your financial sponsor. No one knows what’s around the corner. Therefore you need an exit plan to deal with the possibility of not getting the money – even if it was promised to you in good faith.
Expect the unexpected
The best way to deal with any money situation is to expect the unexpected. There is no way you can plan for something and then expect everything to go to plan. It isn’t happening that way. Be prepared for any and every eventuality and you will be able to sleep better at night.
Please don’t mess up a relationship over money – it isn’t worth the hassle. If you place no expectations on your sponsor you will be able to keep the relationship intact should things take a turn for the unexpected.
It’s payback time
Whenever you borrow money, there comes a time when you have to pay it back. Due to the nature of lending a small business loan from a friend or family member you would have set out milestones by which you pay back the money lent to you.
Do it! No matter what, stick to your promises and honour your agreement.
Timothy Ng wrote this article to inspire entrepreneur wannabes that finding capital for their dream business is not that hard. Tim is a personal finance writer for Credit Card Finder who has passion for making the topic of finance easier understand for everyone.
{ 2 comments }
Excellent article and plan. “Expect the unexpected” is a great one, we never expect that things will go wrong and when they do, and we aren’t prepared, that’s when things get bad.
Friends and family are one of the best options to get financial help a small business. This practoce is called boot strapping. One needs to be carefulin this regard to avoid any chances of hassle or legal expense.
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