Asking your friends and family for a loan or a stake in your business is not a bad idea, and many people pass up this golden opportunity to get funding simply because they have too much pride. Asking those who you know for investment capitol is a good way to work on your sales skills, get feedback and constructive criticism from those who know and love you as well as creating a good foundation that traditional lenders will value in the future. You can borrow small amounts of money from a large number of people, or you can get a couple of close acquaintances to give you lump sums as well. The choice is yours, but you should consider this option as you are thinking about how you can get your hands on much needed cash for your new business.
Traditional lenders usually want some kind of proof that your idea will work and that you will be able to pay back the loan, even if your business fails. After the economic crash of 2008, lenders are more skittish and reluctant to give out money to just anyone and it will be a tough sell, especially if you are a new kid in town. You will have to produce an enormous amount of documentation, personal financial reports, references and even come up with collateral just to get many lenders to simply look at your application before they say no thanks and send you on your way.
However, if you are able to borrow money from friends and family, even if it is not the total amount that you need, you can use that as proof that your idea has traction and that others believe in and support what you are doing. You will have a much easier time trying to convince lenders of your legitimacy if others are willing to give you money, and this support system that family and friends offers carries a lot of weight.
Getting smaller amounts of money from a larger number of people means that you are spreading risk and accountability farther apart as well. You will be able to keep payments relatively low, and you will be borrowing from people who know and trust you. Chances are that most of them will be very flexible when it comes to getting paid back, and this also forces you to learn to network, promote and defend your business. This is something that you need to learn how to do anyway, and practicing on those who are closest to you is a safe way to learn how to polish your approach.
Don’t discount the help that friends and family can provide, and consider looking to them for investment opportunities. You may be surprised how supportive many will be when it comes to giving your encouragement and assistance. And, you will also benefit from having a small army of people standing behind you as you try and turn your dream into a reality.