Your own resources may not be enough to give you the capital you need. "Most businesses are started with money from four or five different sources," says Mike McKeever, author of How to Write a Business Plan (Nolo Press). After self-financing, the second most popular source for business start-up money is comprised of friends, relatives and business associates.
"Family and friends are great sources of financing. "These people know you have integrity and will grant you a loan based on the strength of your character." It makes sense. People with whom you have close relationships know you're reliable and competent, so there should be no problem in asking for a loan, right?
Keep in mind, however, that asking for financial help isn't quite the same as borrowing the family car. While squeezing money out of family and friends may seem an easy alternative to dealing with uptight bankers, it can actually be a much more delicate situation. Your family members or friends may think lending you money gives them license to meddle. "And if the business fails," she says, "the ssue of paying the money back can be a problem, putting the whole relationship in jeopardy."
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The bottom line, says McKeever, is that "whenever you put money into a relationship that involves either friendship or love, it gets very complicated." Fortunately, there are ways to work out the details and make the business relationship advantageous for all parties involved. If you handle the situation correctly and tactfully, you may gain more than finances for your business-you may end up strengthening the personal relationship as well.
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