Why Obtaining A Loan From Family Members Might Be The Best Option For You

Some reasons why obtaining a loan from a family member might be the best option includes:

- Your family members know you better and trust you more than a commercial lender

- You might have less than a perfect credit history.

- You can obtain a loan from family members without a co-signer.

How To Approach Family Members

Approaching family members to help finance your business is  tricky business for these reasons:

-  If you ask some members of the family but not others they might get offended. 

-  If you ask someone who can't afford it they might get up set that you put them in a position to say no. 

-  If you ask for too much you make someone upset because they can't give you what you're asking for.

- Do not wait until the last minute to ask.  Plan ahead.  Show that you're on top of your financial needs.

- Be prepared to make a pitch about the plans for your business.  You can do this individually or bring them together in one place.

- Prepare a written agreement that outline the conditions for borrowing the money.  This will inspire confidence that you're serious about repayment.

Caution:  If you've already borrowed from family members and you don't have a good record of repayment it may not be a good idea to seek funding from family members.

Who Should You Approach

You should approach the following family members:

-  Those that you think have the capacity to lend you the amount you're asking for.

- Those that are willing to lend.

- Those who might get upset if you don't ask them.

What Should You Ask For

You should ask for the following:

- Ask for a portion of the total amount you need from each individual. 

- Spread the risk.  Don't let one person take all the risk. 

- Ask for a sum you think they can easily afford to lend.  You don't have to ask everyone for the same amount

- Ask for the money to be given to you within a specified timeframe.

What Should You Offer In Return

If you want to entice someone to part with their hard earned cash you have to make them an offer they can't refuse.  You can make the following offer.

- Offer them shares in the company with the promise to buy them out when the company achieve a certain value.

- Offer them shares in the company.  If you plan on taking the company public educate them on how they can benefit from an IPO.

- Offer to repay the loan with a specific amount of interest (5%-15%) over a specified period of time or at a specified time.