Ask an average small business owner the first point of contact, to obtain a business loan. Before mentioning local commercial banks and micro-finance banks, the response you will receive is;
“borrowing from family and friends”. When, there, even, appears to be affordable loan options in the former, small business owners still prefer the latter option
Why do you think this option is preferable to others? The terms of lending are generous, the rates
This is true, as you might be lucky to have wealthy family members, who would likely grant you unlimited freedom on how you spend the loan disbursed to you. On borrowing from family and friends, have you ever considered the return on investment of your lender, tax implications or the prospective role the lender might take in your
Approval is almost surely
You may have a very diligent investor as a family member, or, a friend who may require a review of your business plan and confirming the credibility of your business, yet you will not be subjected to the same vetting standards that, most lending institutions, would insist you go through.
Getting approval from a financial institution needs both,
With a touch of your personal connection, you would likely be approved to obtain a family loan. Sourcing a family loan is a guaranteed method of securing capital at first go if the wealthy family member is willing to assist
Generous Terms is likely
The reason why small business owners prefer going through the route of considering a family loan, is the generous terms that you would have offered, compared to the one the bank would present
For instance, you can obtain the exact amount of loan you requested for, low-interest rates or even obtain it, interest-free, ample pay-back time, as these can easily be sorted with your family, without going through the serious documentation processes that a bank would demand of you
Do You Prefer Debt Or Equity
When you obtain a business loan, you have just started a process of debt financing. You incur debt to get your business
You could also go by the way of equity financing through obtaining funding as an investment. From here, your friends or family members would become financial partners in your venture, however, however, the decision to choose the kind of funding you prefer, lies with you.
If you have a family member who has some level of experience in running some strings of a successful business, you could bring them on board to get involved in the decision-making process.
Formality is still required
You might plunge head-on, in trying to obtain a loan from friends or family members, with the notion of making everything involved informal, in the hope of returning the money as promised
There are, however, legal reasons you should make them formal, irrespective of the relationship that exists between you and
You need to ensure a high level of financial responsibility, by not taking their money for granted. You could always meet up with a legal professional, to assist you in drawing up the formal structure of the loan you obtained
Personal with the professional
Obtaining a business loan from your family member means that, you are potentially combining your personal and business lives. It is all about the perspective you take into it. Some folks have the confidence
Obtaining a loan from a family member or
Ensure that, you keep your family members updated about the progress of your business and do not forget to keep your end of the formal agreement. With the way, you would go about researching loan deals, do the same, by speaking to your financial advisors.
It might be a family loan, but that does not make it easy, as you might likely encounter difficulties in paying back, due to familiarity.