Financing Through Friends and Family

The exchanging of money in families creates opportunities for family conflict, especially if you don’t repay on time.

Also, be aware that accepting loans from family members might cause jealousy or difficulties with other family members not directly involved in the transaction (such as siblings who may be concerned about their inheritance or the wellbeing of a parent lending money).

Taking money can create an environment where your lending family member may make unwanted input into your life and business. In turn, this can undermine your independence and ability to say you “made it on your own.”

Do not pressure your relatives into giving you money or take money that family members need to provide for basic needs.

• Be sure your family members are giving you money they can afford to lose.
• If they’re taking money out of retirement, their children’s educations, or their emergency funds, they probably should not be giving or offering you a loan.

If you choose to borrow money from family, be sure to make full disclosure of the nature of the business and the risk and rewards associated with it.

• Provide formal financial statements to the lender so they can understand your full financial situation.
• Talk openly about the possibility that the business could fail and the loan will not be repaid.
• Decide what role, if any, the lender will play in the business.

Once you disclose all financial situations and discuss each individual’s role, write all agreements and have everyone sign.