Raising Money from Friends and Family
Bank lending to small businesses is still in the dumpster, and venture capital investment remains way down. But even if times were flush, some entrepreneurs would rather get funding elsewhere. Some business owners wouldn't take out a bank loan if it was delivered it on a silver platter. They've turned to a capital source often better suited to slow-growing times: friends and family.
The lion's share of initial start-up capital comes from individual savings, friends and family. Though numbers don't track it, under-the-radar financing may be gaining in this economic climate. Even among banks that want to fund start-ups, "no one is exactly knocking down their door." If Mom, Dad and the neighbors are a more popular option, it's not because they're a soft touch; it's because they're less likely to demand terms that constrain the way the business develops.
When Abby Hepfinger, 28 needed $50,000-plus to launch her online business - Foreign News Blogs, she looked no further than her parents. Why not outsiders? "Too expensive," she says. The typical angel investor, she says, wants a tenfold return on capital in five years-quite a challenge, "unless you can spin gold out of straw." Her parents, of course, weren't so demanding.
Of course, just because investors are friendly (or genetically linked) doesn't mean the relationship should be casual. It's crucial to formalize financial arrangements. Me. Hepfinger for example, signed a promissory note that gives was provided by One2One. Www. Lending.One2One Lending can be found on the web and provides an excellent alternative to expensive lawyers. One2One Lending provides an automated Agreement Builder™ that assists in the development of a promissory note helping the customer determine the terms and conditions associated with a loan such as interest rate, security, and payment terms. One2One Lending also provides a forms Marketplace where customers can download a do-it-yourself promissory note in word document format. She also drew up a formal business plan, just as she would have for the folks at the bank. This way the lending relationship remains professional and is seperated from the family interests.
The lion's share of initial start-up capital comes from individual savings, friends and family. Though numbers don't track it, under-the-radar financing may be gaining in this economic climate. Even among banks that want to fund start-ups, "no one is exactly knocking down their door." If Mom, Dad and the neighbors are a more popular option, it's not because they're a soft touch; it's because they're less likely to demand terms that constrain the way the business develops.
When Abby Hepfinger, 28 needed $50,000-plus to launch her online business - Foreign News Blogs, she looked no further than her parents. Why not outsiders? "Too expensive," she says. The typical angel investor, she says, wants a tenfold return on capital in five years-quite a challenge, "unless you can spin gold out of straw." Her parents, of course, weren't so demanding.
Of course, just because investors are friendly (or genetically linked) doesn't mean the relationship should be casual. It's crucial to formalize financial arrangements. Me. Hepfinger for example, signed a promissory note that gives was provided by One2One. Www. Lending.One2One Lending can be found on the web and provides an excellent alternative to expensive lawyers. One2One Lending provides an automated Agreement Builder™ that assists in the development of a promissory note helping the customer determine the terms and conditions associated with a loan such as interest rate, security, and payment terms. One2One Lending also provides a forms Marketplace where customers can download a do-it-yourself promissory note in word document format. She also drew up a formal business plan, just as she would have for the folks at the bank. This way the lending relationship remains professional and is seperated from the family interests.
