Historically speaking, borrowing money from family and friends to start out operating was watched with a somewhat cynical eye. So much that tradition gave us an aliterative phrase to assist our mention of its minus, each time the topic appears.
“Friends, family and fools” is the sentence I’m talking about. This implies that only a parent blinded by love or naif blinded by a lack of experience would do something so dangerous that he funds the dream of an unverified entrepreneur.
The financing of small businesses has passed the revolution in the last few many years. Finding it is now easier and more convenient than ever before. But even the most adventurous lender will need to see positive achievements before he issued a mountain in money to the recent owner of the company.
In other words, in some cases the generosity of friends, family and fools is every part that a young, ambitious, hungry capital entrepreneur can count on. I can say this from each good and bad experiences.
As usual, it looks like a loan from “three fs”
Let’s start with bad. When I first contacted a family member about the financing of one of my ideas, I made him a idiot. I used to be a child, it’s true, but in retrospect my plan was funny to such an extent that anyone was surprised?
I personally fell hard to a multi -level marketing program (MLM), which for a one -time payment of $ 2,000 will undoubtedly make me a millionaire. I went to my dad for the money he immediately delivered.
I lost him equally quickly, but he kept his faith in me, which emphasizes each the strength and weakness of monetary transactions between the owners of young firms and their family members. Ultimately, the whole is motivated by love. My dad, in one angle, was blinded by his love that he lost $ 2000, which he could barely afford; From a different perspective, he made an investment because of this love that in the future he would repay the great time for each of us.
Speaking of this, let’s get to the good. Many years after the defeat described above, I founded an honest company for good repairing industrial characters. I noticed a success from the gate, but my total lack of credit history assured that the formal lenders wouldn’t give me a time of day.
Once again I approached my old man. I asked him for a much higher sum than $ 2000, with which you’ll be able to buy expensive equipment to transfer my company to a higher level. Once again he got here to the rescue. My company exploded soon and I’m sure that life was not for any of us.
In short, borrowing from friends and family is terribly dangerous, because there is a lot more on the line than strange money. Their love opens their eyes to your potential, but also blinds them to your weaknesses and exaggerates your strengths. To be honest with them and for yourself, never consider concluding such a contract without taking the following steps:
1. Be completely honest in terms of risk
When I went to my dad about MLM, I never even hassle to cause the incontrovertible fact that I couldn’t pay him back. I used to be so sure that I succeeded that it appeared to be a lack of words.
To be honest, potentially lack of hard -earned money is never a lack of words. No relationship is so strong that a misunderstanding regarding funds cannot damage it.
I’m very lucky that my dad has forgiven me so immediately, but nothing like this is written in stone and joyful results often depends on the aspects that change from the moment to moment and relationship with the relationship.
On the other hand, if I used to be easy from the very starting with the risk of MLM, I’d take a big step towards guaranteeing a joyful result, no matter what happened.
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2. Place every part in writing
I’d strengthen this step immensely if I wrote it with my dad before. After all, the memory is a capricious thing – when the last time you and even your best friend remembered the complicated event exactly in the same way?
No matter how honest you are before the risk, the probabilities are good, if you finally lose someone’s money, the most vital thing they remember is that you just seemed terribly enthusiastic about your perspectives when you asked.
Writing a easy agreement will help keep honest in these circumstances. It is much harder in charge someone for the selection you made when there is clear evidence that no one has twisted your shoulder.
3. Be Fast (and Open) about the loan repayment
When you borrow money from family and friends, make sure you configure the repayment plan, and then never place them in an awkward situation to approach you. Be so proactive to do it as if your life depended on it.
A few opportunities that I borrowed to my family and friends was very honest that I expect that this kindness can be shown to me. As for one friend – the owner of a small company whom I helped to interrupt out financial problems – I used to be in the extreme of blunt.
“Do not force me to pay it back,” I said principally – and I said it because it was vital to maintain the relationship. He understood that I used to be not saying that I’d break his hand in case of delays – I just said: “Be honest with me. Overtake it. Communicate if you feel overwhelmed. “