Borrowing money for a small business (credit card, lending, fees, mortgage companies)

[Rapture]

Has anyone borrowed money from friends/relatives to open a small business? I'm assuming they were presented with a business plan but was there anything else to support your idea? Did you go through a lawyer? What is a fair agreement?

[NorthmeetsSouth]

I haven't borrowed money to start a business, but I have loaned money to. On a few occasions where it was just a straight loan I simply wrote up an agreement stating how much I was lending and when it was due back, and we signed in front of a notary. I have done this for a couple of friends and I will say that somehow when people are paying you back the money that you loaned them to start their business they somehow forget that it was YOUR money and they act as if they are giving you THEIR money, and they seem to resent it, so just be warned that you don't want to have that attitude toward your friend or family member who helps you out.
Another time I put up the money to start a company and I drew up a partnership LLC (you don't need a lawyer for this, just go on line to the Sec'y of State and follow the instructions) and became a partner with my investment. Depending on what type of business you are doing and what the money-person wants to do you can make it a straight loan or sell them a percentage of your business.
Good luck!

[Dave1215]

With out any additional background, my initial reaction would be to not borrow from friends/relatives - start with your local bank and possibly go with an SBA backed loan. If you bring friends/relatives into the picture and you have ANY problems with the business you can potentially impact the relationship big time... is it worth it?

A business plan would be a very important component. One it will show whoever is loaning you money, or investing, what the plan is, but also by being serious with your business plan it will also insure that you understand and think about your own business early on. Once you start the business, revisit your plan at least once a year - it will help you think are you where you planned to be and where are you going next.

Good luck.

[Rapture]

Originally Posted by NorthmeetsSouth

I haven't borrowed money to start a business, but I have loaned money to. On a few occasions where it was just a straight loan I simply wrote up an agreement stating how much I was lending and when it was due back, and we signed in front of a notary. I have done this for a couple of friends and I will say that somehow when people are paying you back the money that you loaned them to start their business they somehow forget that it was YOUR money and they act as if they are giving you THEIR money, and they seem to resent it, so just be warned that you don't want to have that attitude toward your friend or family member who helps you out.
Another time I put up the money to start a company and I drew up a partnership LLC (you don't need a lawyer for this, just go on line to the Sec'y of State and follow the instructions) and became a partner with my investment. Depending on what type of business you are doing and what the money-person wants to do you can make it a straight loan or sell them a percentage of your business.
Good luck!

Thanks. I can relate because I have lent money out before and either didn't get it back or the people were reluctant to give it back. I'm nothing like that and never borrowed money except from a bank for car loans and mortgage companies. Never been late and I have excellent credit.

I've thought about offering it as a partnership but I always hear that's not a good idea. I also like to be in control of things, if they were a partner and decided to occasionally put their two cents in, it would cause trouble. I'd rather just borrow and pay them back asap.

[Rapture]

Originally Posted by Dave1215

With out any additional background, my initial reaction would be to not borrow from friends/relatives - start with your local bank and possibly go with an SBA backed loan. If you bring friends/relatives into the picture and you have ANY problems with the business you can potentially impact the relationship big time... is it worth it?

A business plan would be a very important component. One it will show whoever is loaning you money, or investing, what the plan is, but also by being serious with your business plan it will also insure that you understand and think about your own business early on. Once you start the business, revisit your plan at least once a year - it will help you think are you where you planned to be and where are you going next.

Good luck.

Thanks. I was thinking about friends and relatives because of two reasons: 1. Less paperwork involved & 2. Can probably get the loan faster.
I've never asked or borrowed money from anyone in my life and the people I would consider asking totally trust me. I actually have most of the money I need in the bank to start up but I was thinking I should keep that as back up money. I really don't think it would be a problem if we have an agreement and I stick to it. I WILL stick to it, it's in my nature - I stick to everything I say I'm going to do. The hard part is ASKING because I never ask anyone for anything - I'm not comfortable doing that.

Yes, I've done business plans before but never followed through with opening the business. That's my problem, I always have the dream but I don't go after it. Right now I see an opportunity I feel strongly about, so hopefully I don't chicken out. Thanks again.

[bubbagirl]

Definitely come with a business plan in hand with all the details laid out. I know if I were to loan out money, I would want the fullest explanation possible as to where that money is going to be spent, what your business plans and GOALS are, and a sound explanation as to why you feel this business is going to be successful - including where you see the demand, your target customer/market, and a realistic expectations of expenses. Also, if you're paying back with interest, be sure to be able to present those numbers.

I'm in your same boat... a friend and co-worker of mine has tossed out a business idea, and of course I added my own spin on the idea... and poof, we're ready to get things underway. Except, we do not have the projected start up funds available and look like we'll need to borrow. I agree that the bank of family/friends is faster and sometimes more reliable. One thing we're looking at writing into the agreement is an additional payout of a small percentage of monthly revenue on top of the loan repayment for the duration of the repayment time period, probably 1.5-2%... simply to offer a little more incentive so that the investor gets a little more back for going out of their way.

[Padgett2]

Just a thought.....do you have life insurance? If so, you may be able to borrow against it, or cash it in. Or a home equity line of credit.

Borrowing from friends or relatives doesn't always work well unless they are in a position where they would NEVER need it in a hurry for an emergency.

[Humanoid]

If we are not talking about a lot of funds then credit cards are an extremely useful way to fund your business. If you have decent credit you can easily get 20-30k in credit at reasonable interest rates (You can usually find 12 month 0% APR promotions too).

Also getting a loan from a bank etc can be a total pain if you are doing something non-standard (Because the folks at the bank will not understand what you are doing).

[StealthRabbit]

I kissed the banks away when I started using my Margin Acct (stock Equities) for funding my business and investment ventures. I had systematically saved by buying company stock for may years, but didn't want to liquidate holdings every time an opportunity came up, so I added Margin + check writing to my brokerage accts. I got really tired of paying fees to originate loans and providing paperwork. This has helped a lot. I do use the banks when they offer me money cheaper than I can get it from margin or home equity. BUT... don't use your primary home equity for business loan !!! You might end up with unhappy kids and spouse living under a bridge.... It is a cheap source of funds as long as you have a BACK UP plan to bail yourself out of an emergency.

[richson]

I borrow three times about 40.000 $ from some of my friends ,
if they have much money, they don't need it and they can trust you, it's good way to find money, but it sound difficult to find someone who has all of that.
for investment, I worked in FOREX Market , and I can Borrow much money from my Broker