Raising money for a new business venture is never easy. And although there are many sources of funding available for a person to pursue most of them will never pan out. At least not initially. Banks prefer to loan money to established business. Angels want to invest in businesses that will provide a hefty return on their capital and venture capitalists want to invest in the next great public company. Often in the end you will find that you have only three options. Yourself, your family, and your friends. And if you had the money you wouldn’t be reading this article.
Asking for money from your family and friends is not always an easy thing to do. You’re asking them to put their trust in you by investing potentially thousands of dollars in your business concept. Which is definitely different than asking for twenty bucks until next Friday. So before you go about asking them you had better be prepared. To start you should make a list of who you are thinking of asking. Consider the relationship you have with each person separately. Is it a good solid relationship or has it been a bit bumpy? You need to really think this through before asking.
Families have been split apart more than once because of money. And you don’t really want to be the cause of such an occurrence. Some people may be willing to loan you the money even though they really don’t have it. Asking grandma to dip into her retirement may not be a wise idea. Once you’ve gone over your list though you should hopefully have a few legitimate candidates left. People that know they can trust you, will believe in you and might have the money.
Now it is time to prepare. Consider your family and friends like you would a bunch of bankers. Prepare your business plan and loan proposal the same as you would for a bank. Your investors are going to want to know what is in it for them. What kind of a return on their investment can they expect? How long will you need the money? And what kind of security if any are you offering? These questions and others are going to pop up so be prepared.
When it comes time to give your proposal watch for red flags. Many people think because they are willing to loan you money it gives them the right to get involved. From some people you may welcome their involvement. Possibly as a sounding board for your ideas but not as a partner. If this happens during your proposal then you can guess what it might be like after you have borrowed their money. Be prepared to walk away from such a situation.
When giving your proposal do not get emotional. Do not use your relationship with someone as a way to persuade them into investing. This is a business proposal offered by you to them. If you let emotion get in the way now then you will later as well. Keep it professional and leave your relationship out of it. This won’t be easy but it’s the only way to do it. And if your proposal is rejected then except it gracefully. Don’t hold any grudges because of it just thank them for listening to you.
Your family and friends can often be a great source of funding for business start-ups you just need to consider the risks beforehand. Take into account their situations before asking and don’t take it personally if they don’t want to help you. Remember that your friends and family members should mean more to you than a business venture does.