How Friends and Family Can Help Finance Your Small Business Startup

A Home Business Article Contributed by Abe Gardea

How Friends and Family Can Help Finance Your Small Business Startup

Okay, you have the idea for your small business startup, now there's only one minor detail to take care of: finding the start-up capital that you'll need to get your business off the ground. With all the talk about how difficult it is to get a small business startup loan, it's no wonder so many entrepreneurs have turned to their friends and family for help. In fact,loans from people you know are two of the most common ways to start a business. But the risks are obvious.

What if you use your parent's retirement fund for your start-up capitol and your business fails? What if your friend lends you her daughter's college fund, and the business never gets off the ground?

It's wise to go into a relationship like this with everyone's eyes fully opened. Here's some tips that just may secure your small business startup loan while saving your relationships.

Be honest about your small business startup.

Don't try to sugarcoat your business idea. When friends or family are considering investing in your business, it's only fair that they understand exactly what they are getting into. For example, if you are planning to start a home-based secretarial service and you need the funds to purchase office equipment and furniture, don't overstate the possibilities of your position.

Just because a person in the management team of a large corporation told you that you should think about starting a secretarial business, that doesn't mean that you already have that person's business. It helps to think of these potential investors just as you would a bank or other professional investor instead of "mom" or aunt Betty.

Make sure they understand the realities of your small business startup.

Okay, so your sister likes your idea and has offered to invest the money she's been saving for a house. Before you take her up on the offer, it's your responsibility to make sure she understands her risk. No matter how much you've planned for the business, no matter how "full-proof" it is, there is always a chance that it will fail. One good way to make sure she understood would be to have her imagine that the business has failed, and she has lost the money. How would she feel?

Would she wish that she had never loaned it in the first place? Additionally, as a borrower, it's vital that you never take money from someone who you know can't afford to lose it. Your sister could possibly save money again for her dream house, but it's a different story if your elderly grandparents want to lend you money from their retirement fund that could never be replaced.

Add a professional to your small business startup loan.

Okay, so you've got some friends and family members who understand the risks and are still willing to lend you the money you need for your small business startup capital. Instead of having your Aunt Betty call you every month to check on her loan payment, wouldn't it be better to have a professional do it? This would allow you to continue your personal relationships with your lenders, and let the professionals worry about the business. Check around for companies who specialize in handling these types of loans.