Friends, Family, and Money… To Ask or Not to Ask, That is the QuestionEditor
You’re starting or expanding a business and need money. Perhaps you don’t want to (or can’t) go the route of borrowing from an institution. After much deliberation, you’ve decided to turn to your personal circle. You may be asking yourself if it’s right or wrong to go this route? And there isn’t a right or wrong answer to this question but there are things to consider when it comes to borrowing (or lending) money from people you are close to. After all, we want to keep relationships intact and few things can botch a friendship more than money matters.
The first thing you need to assess is how much money you need. Next is figuring out if you have people in your life that would have money to lend/invest. Let’s use an example of needing $10,000. Do you think you’d have better luck asking 20 people for $500, 10 people for $1000, or 2 people for $5000? Once you have an idea of who is in a position of having disposable income, it will be easier to figure out which direction to go.
It’s never easy to ask for help, especially when we’re asking for money. So, your approach should be well thought out and planned. Expectations need to be realistic and void of judgment and emotions if you don’t like the answer you get. Be precise in what you’re looking for and what you’re using it for. Be prepared with outlined details of your plan and how it will affect them.
Something to consider is how you or the person you’re approaching wants to handle paying back the funds. There are several options to mull over. The obvious is to arrange either a payment plan or a deadline of when you will have all their money paid back. Will your generous friend expect interest on the money they are loaning you? You may interested in a silent partner. Is this something they also have an interest in? Offering products or services to them till the loan is paid off is another avenue to ponder. The trick here is to not only have a plan you can live with but one they are on board with as well.
Prior to negotiation, it’s important to have a clear explanation and timeline. Telling your “investor” that you’ll turn this money around in a month when you know that’s not realistic. If you think you won’t have their money for 6 months, be honest. Telling them what you think they want to hear, if it’s not true, will only make them leery of ever lending money to anyone again. Misleading information will also damage your relationship with them. Neither of you want that.
Finally, keep business and personal lives separate. If you and your investor friend go to dinner, allot a pre-set timeframe to talk about business and then move on. If all of your conversations revolve around your business dealings, your friendship may suffer. It’s a fine line to walk, but in the end, the relationship is most important.