The way toward raising capital for your business can be challenging. In addition to the fact that you need a strong concept, you must also make a convincing pitch and marketable strategy. You additionally need to connect with potential investors and apply for bank loans. The energy it takes to raise the assets for your startup can rapidly expand out of scope, which might be the reason that 29% of new independent companies come up short on money and come up short.
So how do the people who are successful do it? Truth be told, 38% of new companies are financed by loved ones. Business visionaries without cash put aside or unfit to meet all requirements for enough credit, asking loved ones is regularly the most effortless approach to obtain the assets they require for their business.
A new study conducted by Fundera polled 1,000 people if they would loan money to their friends and family to start a business and revealed that 82% of people would not loan a friend or family member money for their business.
Additionally, the study found that men are 25% more likely to loan a friend or family member money for their business than women and young millennials aged 18–24 were the most likely age group to give a loan to start a business.
This might be on the grounds that numerous individuals are extremely mindful of the strain cash puts on a relationship, or have even effectively lost a friend over money-borrowing issues. With this insight that many people would not want to advance a friend funds for their business, how are so many entrepreneurs still doing it?
Here’s How to Raise Funds From Friends and Family the Right Way
Approaching loved ones for cash to launch your business may not be as easy as it appears. You will probably need to ask a wide range of individuals so as to raise the capital you require, and will receive numerous refusals. This does not mean you should give up starting your business, but rather it means it’s essential to be as prepared as you can. Thoroughly consider your business objectives and budgetary needs before moving asking someone for cash so as to make it as easy as possible for them to understand what your business is about and why it will succeed. Here are some things you will need to prepare before approaching a loved one for funding:
Clarify Your Business Plan: Demonstrate you’ve thought things through by being as thorough as possible. Don’t skimp on research. Know your market inside and out, what it will take to succeed, how much money you will need, and have a plan for the future. Doing these things will communicate that you can be trusted to build a successful business.
Request a Specific Amount: Ask for a realistic and exact sum, to indicate you have a strong comprehension of business accounts. Like with your business plan, this helps build your authority in the realm of business and finances.
Settle on The Terms: Many of the relationships that have been negatively affected by money-lending could have been saved it there had been more communication up front. Don’t leave anything unclear. It’s better to broach uncomfortable subjects while you are both amicable. Clarify whether the moneylender is anticipating reimbursement, equity, or if the cash is a gift.
Sign a Loan Agreement: In the terms you set, let the lender know when and how you will repay them. This helps to keep you accountable, and your loved one confident in the agreement.
Attach Payments to Your Growth: You may want to make it clear to your friend or family member that you will pay them back when you are able to. This typically means that as your business turns a profit, they will receive payments at the rate that you make money. This manages expectations about how quickly the loan is to be repaid.
While asking your loved ones for money can be uncomfortable, with a great idea and solid business plan you may still be surprised with how much support you find. For a summary of this information, check out this infographic below: