Get Weekly Updates
Grow Your Business
Choosing between a bank or family loan
Feb 17, 2012
Q: I am a new entrepreneur and I’ve been getting negative feedback from banks that refuse to lend me money for my business unless I had a track record. Would it be wise to borrow money from friends and family instead?
A: If you are a startup business and it is your first time to venture into entrepreneurship, it will be advisable that you finance your business on your own. You can use your own savings, and maybe your credit card to some extent, to start the business and see if your business is feasible.
Own money. When you use your own money, you will be more careful and focused on making sure that your business becomes successful. And if it doesn’t succeed, at least your loss will be limited and manageable. You need to know how much capital you would be willing to invest and how much loss you could tolerate before you decide to close your business down.
Now, if your business has survived at least the first six months and it has shown to be self-sufficient in terms of cash flow—meaning the business can sustain itself by using the cash inflows it derives from revenues to pay all of its cash outflows—it may be a good time for you to consider expanding.
Family and friends. By this time, it would be easier for you to pitch your business because you have something to show that is actually operating and profitable. Your family and friends will be the easiest to approach for funding because they are comfortable to deal with. Obtaining loans from them will also be cheaper compared to banks or outside investors.
Of course, because of your familiarity and comfort with these people, there is always a temptation to take them for granted. As an entrepreneur, you need to be professional in your dealings. You should treat your family and friends like any other investor. If you need to present a business plan about your business to other investors, then you should also do this to your family and friends. When they lend you money, you should document it under a formal agreement stating the terms and other details of the loan. For all we know, they may be your only source of external funding if you don’t qualify for a bank loan, so treat them professionally.
Looking for a new business? Find opportunities here
The best place to look for suppliers and business partners
Know where to place your investments
Looking for ways to fund your business? Find them here
Find the right suppliers and clients for business equipment and other products
Earn money from your properties. Post your advertisement here
Anything and everything about franchising
Expand your network here
Get the buzz from fellow entrepreneurs
Let’s solve your business woes
Your guide through the start-up maze
Swap tips and get advice on juggling your business journals