Friends and family: obtaining start up capital
More often than not, starting a business can involve a certain amount of money to be used as a start-up capital. Sources for capital funds can be banks, other financial institutions and of course, the funds can be obtained from the family and friends. It is more convenient to borrow money from family and friends because they generally do not have interest rates and banks do.
There are financial risks that are involved with putting up a business and this is one of them. Convincing relatives and friends that the business venture will be a success may later result in distress because of their unrealistically high expectations. They might be disappointed if the business does not turn out well. That is why there must be a constant reminder from the business owner that their money might not be returned to them fast as certain setbacks might arise at the start of business operations.
Family members should also understand that not every investment turns out well. When setting up a business, it is the family and friends of an entrepreneur who (if you are lucky to have such a family) are eager to support him in his endeavor. In most cases an entrepreneur can loan money from them without interest unlike when dealing with financial institutions. In the initial stages, financing that comes from family members is a very normal and common practice in many cultures.
It is acquire a business or start a business from scratch with financial backup from a network of family and friends. Having them as the source of funds will definitely be fast and convenient. You don’t have to wait in line or talk to the manager to apply for a loan. All it takes is for the friends and family to listen to your business proposition and how you plan to return their investment. If in any event that your business will be having problems in the future, it is easier to talk to people you know rather than the people who work for banks and other financial institutions. Sourcing out funds from friends and family will also motivate you to reap profits from the business so that the amount that was used as start up capital be returned.
In conclusion I’d like to mention that I wouldn’t advise you to borrow money from family and friends in case your venture is very risky and you’re not at least 50% sure that you can pay back. This may spoil your relationship and this is not something worth risking.
And make sure you don’t borrow money from the wrong family:)
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