Relationships – If you struggle to make repayments, or the business does not do well after receiving the finance; you risk damaging your relationship with your family member or friend. Likewise, if the lender wishes to have more control over the business; it can cause arguments leading to relationship breakdown.
Stability – Family members and friends are more likely to have personal problems requiring them to request immediate repayment. Banks and other lenders will be more secure and stable in the finance that they offer.
Politeness – Family members and friends are unlikely to have the same experience with business plans as other lenders. This means they are more likely to risk their money on projects that have little chance of succeeding.
Tips for Family and Friend Finance
More than many other types of lending, you need to make sure that you get your borrowing right when it involves people you have existing relationships with. To help make sure you can have both a successful business and a successful family/friend relationship; here are some useful tips to consider while organising the finance:
Get Professional Advice – It doesn’t matter how good you think your idea is, someone with an external critical opinion is vital to ensure that you (and you family/friends) don’t throw good money at a bad/risky idea. Professional advice will also help to ensure all the legal issues and terms are settled in a way that is legal and fair to both parties.
Create a Written Agreement – Many disagreements caused by family and friends lending money can be solved by having a written agreement with all the details and terms spelt out. Without one many disputes end up simply as one persons’ word against the other.
Have Sensible Expectations – You may hope to make huge profits in year one, but is that a realistic expectation? If you ensure that your targets are sensible and well planned, you will be far more likely to meet them. Likewise make sure you aren’t promising an investor a big return that they are unlikely to actually get. You should also ensure that your family member or friend is not looking to invest amounts they cannot afford; this not only affects them, but puts your business at risk by creating unstable cashflow.
BizHelp24 – UK business and finance information, news, help and services for small businesses BizHelp24 is a UK business and finance resource providing Small Business Help, Start up Information, news and services; for individuals and Sole Traders. Comprehensively covering a wide range of key business, finance, and service topics. Employment and personal information includes Work Times and Break Entitlement, Body Language, employee Holiday Entitlement and Employment Contracts. Credit Policy information includes Letter of Credit, useful Credit Notes, Business Loans. and Cash Flow Control. Other information areas include Bankruptcy, Homeworking, Business Failure, Company House and Company Names,
The free content within this entire web site is for information only.
The content is believed to be accurate, but only in general terms. Specific advice is needed for individuals & businesses.
ROK Connect Limited (Registered in England No.3573320) t/a
Biz Help 24 is registered with the
Data Protection Act 1998 No.PZ7082780
