With only 6% of new small businesses getting funded by bank loans, small biz survivors raise their money creatively. Lots of small biz people turn to family and friends, partially because rural families tend to live close together. Rural banks play a role, too. If it ain’t an ag loan, many rural bankers ain’t interested!
A great article by Asheesh Advani, at Nolo.com, offers some advice on financing through family and friends.
Getting friends and family involved in business financing is not uncommon — nearly one in ten Americans reports a loan outstanding to a relative or friend. And, although lenders usually get involved to help you out, they can benefit from the deal as well. For example, the interest you pay will probably be higher than what they would receive from other short-term investments such as CDs or money market funds. And you’ll still be paying less than you would on your credit card!
Some of the key points Advanti covers are:
- Protecting everyone’s interests
- Dealing with issues in advance
- Keeping the arrangement businesslike
- How to ask
- Documenting the loan or investment
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