Fire your banker. Hire your mom.
Family loans for entrepreneurs
Asking for money from your family usually sucks.
Needing help with something like a down payment for a house is bad enough, but if you’re an entrepreneur trying to raise money for your new business, it usually sucks even more. This is because, to put it bluntly, your business can fail. And that exact thought is what is going through the minds of whoever you’re asking for money, even if they’re too polite to come out and say it.
The worst part about this is that you are probably much more invested in these close relationships than you are likely to be with a typical banking relationship. That’s why banks need to charge relatively high rates. Because at the end of the day you don’t actually care about hurting their feelings; you just care about how it might impact your credit. You probably care a great deal about your personal relationships, but that doesn’t always make it easy to add a financial component to the relationship.
Luckily, there’s a technological solution to this.
Remember: for any problem that people think technology won’t really be able to solve, technology usually ends up proving them wrong. In this case, various social media platforms or even simple email lists have made it less awkward for people to ask for money from friends and family. We have all felt uncomfortable when a co-worker directly asks you to sponsor their 5k run or buy some crap their kids are selling for school. But if you receive a simple group email from them, or see a link to a campaign page they created for it, it’s not awkward at all.
The best way to get loans from friends and family is by NOT asking.
(Instead, show them an awesome business idea and let them decide if they want to be part of it.)
Even the most business-savvy entrepreneur can forget the basic rules of Sales 101 when all of a sudden they’re talking to their family or friend. But in the context of a business proposal, this is wrongheaded. Say you need a small business loan from your dad. You shouldn’t treat him like the caring and responsible father he is. You should treat him like the smart, hard-working business man he is who made a great career for himself. This is a business proposal first and foremost. The love and trust of the relationship should just be the cherry on top. It’s what seals the deal, but not the deal itself. Otherwise, you’d just be guilting people who love you into giving you money. And we all know the problems that can come of that.
Make your lenders happy, even if you fail.
Remember that showing the people you know something they actually want to be a part of is the exact opposite of pressuring them into lending you money. That way, if the worst happens and you’re not able to pay them back, they at least feel it was a financial risk they took willingly. Don’t forget to protect yourself and your lenders with legal agreements, which you can do online, or even on old fashioned paper.
Trustleaf makes it easy to raise money from friends and family.
