Borrowing money from your friends and family can be a tricky business. The risk of ruining your relationship with the people who loan you money is probably one of the biggest concerns. Even if you have one of the best small business ideas on the planet, you need to think about how you ask folks to invest. If you do it right, you’ll get the cash, the business, and strengthen your relationships. If you blow it, you’ll pooch all three. Many years ago, I needed to borrow money from family and friends. I did so, got what I wanted and paid everyone back. We’re all still one big happy family. The whole process left everyone’s money and marriage intact.
Here are the steps I took and what I suggest you do:
Please be realistic. Imagine that your brother-in-law comes to you for money. What kind of plan would you want to see? Make sure you have that plan ready to go.
Clearly spell out a time line for your business and the cash flow it is going to generate. Have the best and worst case scenarios spelled out. Know when it’s reasonable for you to repay the loans.
Once you’ve formulated your plan, show it to someone smarter than you. You may have forgotten something. If they have suggestions or criticisms, don’t try to prove why they are wrong. Work hard to see how they are right — especially if they throw you a curve ball.
With a good written plan, think about who you’re going to approach. Just because somebody has money doesn’t make them a candidate. Only go to folks who are reasonable, can afford to deal with the worst case scenario, and aren’t a pain in the butt. Once you borrow money from someone, they become your partner. Friends of Don Corleone in the Godfather learned that the hard way. You don’t want to sleep with the fishes….do you?
Don’t expect anything from the people you decided to approach. Go in with an open mind and welcome their refusal. Tell them that up front and mean it. It’s the only way you’ll be able to keep the relationship in tact.
Before you talk to anyone, think about what might happen if everyone says “NO”. What will you do? If it means the business fails or doesn’t get off the ground, can you accept that? You must be able to accept that.
If not, you’ll be going in with too much energy and stress.
Once you can accept your worst outcome, you’ll be able to maintain your relationships regardless of how things turned out.
No matter what, you must deliver. If it means getting a second or third job to do so….do it. You are only as good as your word. Excuses don’t mean a thing. People aren’t stupid.
If you follow these steps, you’ll be able to approach your family and friends for money without jeopardizing the relationship. On top of that, you’ll have a great chance of getting the cash you need.
What was your experience raising money from family? Did it go well? What were the critical success factors? What would you do differently today?