In a perfect world, small business owners would stick to borrowing professional money and avoid going into debt with family and friends to fund an unproven venture.
It’s not a perfect world. While it’s true that entrepreneurs have more financing options than ever before, startups often discover that traditional bank loans are out of reach, while online lending can be prohibitively expensive.
What’s an ambitious entrepreneur to do?
I got my start in small business with a $15,000 loan from my father to buy a boom truck for my sign business. I had no other option — I didn’t qualify for a traditional bank loan, and my complete lack of credit history meant that every door I tried was closed in my face.
Perhaps you can relate. If you’ve tried all your other options, family and friends might be the only place to turn. After all, they’re invested in your success on an emotional level that no other lender can match.
I personally believe that these emotional attachments are sacred. A financial investment motivated primarily by love is a wonderful thing.
But if they’re sacred, they’re also fragile. Think long and hard before you test them by bringing money into the question. A valued colleague of mine suggests that entrepreneurs seeking financing from friends and family should always begin with the premise that their relationships are more important than their business.
That’s sound advice. If you follow it, and still conclude that borrowing from loved ones is the best way to go, here are some tips on how to best go about it:
1. Be brutally honest.
More small businesses fail than succeed. Talented people with great ideas fail every single day. While your family and friends might acknowledge that this is true of other people, love’s tendency to exaggerate strengths and downplay weaknesses can blind them to the possibility of failure in you.
Open their eyes. Make them…