1. Money

How to Ask Family and Friends for Cash for Your Small Business

7 Rules to Follow to Keep Business and Personal Relationships Separate

By

Asking for money from family and friends is rarely an easy thing to do but often necessary when funding a small business. But there are some basic rules you can follow, to make it easier on yourself, and easier on those you ask. Never take personal relationships for granted, or expect someone to give or lend you cash, even if according to your standards, they have “money to burn.”

Rule #1: Family and Friends Are Not Banks: Don’t Treat Them Like One

Bankers and investors expect to be asked for money, family and friends do not. It is always a bad idea to catch someone off guard and ask them for anything, especially money. If you were being asked to invest in something, you would want information, and the time to think things over. Your family and friends deserve this same courtesy.

Rule #2: Think About What You Need Before Bringing Up Money

Before you approach the person, be sure to thoroughly think through what you want to ask them for. Have an amount in mind, repayment terms, and any other conditions you feel are needed. You should also think about what is not acceptable, and be prepared to negotiate, or politely decline an offer that does not meet your business goals, or that might sour a personal relationship.

Rule #3: This is Business: Set up a Meeting

Before you ask for something specific, broach the subject in advance. Give the person you are planning to ask for money time to think about whether or not they are interested – before you even ask. Set up a business meeting, or invite them to lunch (you pay) and tell them you want to discuss a business opportunity with them.

Rule #4: Prepare a Sales Presentation

If you have a business plan (you should before asking anyone for money), promotional literature, or financial reports, give them this information before the meeting takes place. Just because the person is a family member or friend, do not expect them to be excited about offering money without being “sold” on the idea, first. Prepare, and deliver, a marketing strategy or sales pitch, just as you would do for an investor or lending institution.

Rule #5: Put Everything in Writing

Few things can sour an otherwise good relationship faster than a misunderstanding over money. If you are asking for money for a business purpose, make it a business transaction. Even if the lender says that formalizing the loan or investment capital is not necessary, it is. Not only to protect the person giving you money, but to protect yourself and your business.

Insist that the terms of borrowing, or investing, and any repayment terms, are clearly spelled out in a contract or agreement. Have all parties involved in the transaction sign before you take the cash.

Rule #6: Follow-Up on Your Progress and Set Backs

Do not wait for your benefactor to ask how things are going. Keep them updated. They will be less anxious about how their money is being used.

Rule #7: Stick to the Agreement

Do not use money given, or lent to you, for any purpose other than what was agreed upon. Stick to repayment terms, and anything else that was agreed to in writing. If you cannot meet a loan payment due date, let the lender know in advance – they may be counting on your payment to meet their own obligations.

©2014 About.com. All rights reserved.