Business Loans from Family and Friends: How to Ask, Make It Legal and Make It Work

Author: Asheesh Advani
Binding: Paperback
EAN: 9781413310788
Label: NOLO
Dimension: 0.3 x 8.98 x 0.23 inches
ISBN: 1413310788
Manufacturer: NOLO
Publisher: NOLO
Number of items: 2
Number of pages: 287
Publication date: November 02, 2009
Studio: NOLO

Features and Descriptions

• ISBN13: 9781413310788
• Condition: New
• Notes: BRAND NEW FROM PUBLISHER! BUY WITH CONFIDENCE, Over one million books sold! 98% Positive feedback. Compare our books, prices and service to the competition. 100% Satisfaction Guaranteed

Product Description

Skipping the bank is an option: learn how to ask for money from trusted family and friends, keep it legal, and keep everybody happy

About 65% of domestic banks report that they have tightened their lending standards for commercial and industrial loans to small firms (CNN, September 18, 2008).

Many entrepreneurs at the early and often untested stages of launching or expanding a small business are having difficulty qualifying for traditional bank loans or venture capital in the down economy, particularly those with poor credit ratings. Business Loans From Family & Friends opens a window on an area of lending that accounts for more than 50% of all start-up business investment dollars, and, additionally, is a great resource for those who have identified their lending friends or family, but want to know how to structure the deal so that everyone understands it and no one gets hurt.

Business Loans From Family & Friends offers practical tips on how to approach and ask professionally, along with clear guidance on how to protect lenders from risk. It provides complete instructions for drawing up the paperwork to formalize the loan or investment, while the CD-ROM contains handy forms, including:

loan proposal letter

letters of intent

personal financial statement

promissory note, and more.

When I first started out in the record business, and was struggling to get by, my Aunt Joyce was kind enough to give me a small loan.

In my case, as maybe in yours, my aunt had heard through the family grapevine that I needed a loan, and when I came knocking on her front door she was prepared with her offer. I was incredibly grateful, took it very seriously, and paid her back - with generous interest - as soon as I was able.

That loan kept the Virgin Records recording studio afloat. It gave me the time and resources I needed to make my business a success. And many years, and many business ventures later, I still have her to thank.

Though my ventures and my lenders are considerably bigger now, I still witness the critical role that relatives, friends and associates play in the founding and growth of young businesses. And it makes so much sense, really. Friendly lenders tend to be a fast, flexible and affordable source of capital - as long as they can trust you are good for the funds.

If you can't get what you need close to home, and if banks have slammed their doors on you, get out there and keep searching. Even in recessionary times, a resourceful entrepreneur will find sources of capital from within their network or friends' networks. Be patient. Be persistent. Be resilient.

I'll say now that when it comes to growing a business I truly believe there are no rules to follow. What works once may never work again. You learn to walk by doing, and falling over, and it's because you fall over that you learn to save yourself from falling over. Raising money to fund a growing company is the same.

This is the only book I've ever seen that rolls up its sleeves to help entrepreneurs raise business capital from people they know. And I'm delighted to have a part in it to help you get started. I truly believe that success is when you have created something you can really be proud of. So, on with it!

Richard Branson

Published under: Recommended Financial Books

Tags: business, loans, family, friends, legal, work

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Comments & Ratings (Average Rating : )

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- Neither a borrower nor a lender be

High brow literary quotes aside (I only just now learned that phrase originated in Shakespeare's Hamlet), asking family and friends for money can be asking for trouble. I love the NOLO guides and this book is no exception. If you need a very thorough guideline for protecting everyone involved should you find yourself turning to friends/family for a business loan.

Of course, you need to have some friends or family members with a little cash at their disposal for this book to be effective. The book does a good job of demonstrating how a person can legitimately approach these people without looking like a flake. As the book points out, going the traditional route of borrowing from a bank can be especially tough these days. This book offers a clearly explained explanation on how to get your ducks in a row and let your prospective lendors know that you have a plan.

There are a number of forms available on the included CD-ROM that are very much usable and worthwhile. That's hoping you actually get to that stage of the process! The book covers the steps that it takes to get there - including how to bite the bullet and go ahead approaching them about the loans.

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- Essential advice if funding your business from a friend or relative is ever a possibility

I have been on both sides of the providing jobs for relatives issue. Right out of high school I went to work for my uncle's construction company and for years I have enabled my daughter' job as a handygirl, mowing lawns and doing similar odd jobs. From this perspective, I know that having business-style relationships with relatives can cover the entire spectrum of difficulties. I have also helped out when relatives have had financial difficulties, although I have never given out a business loan. I have owned and operated a small business for years, but have never been in the position of having to approach a friend or relative for a loan to prop up or expand the business.
My business experience with relatives has taught me that they can be a great resource when needed, as long as everything is clearly understood before the money changes hands. This can only be done by treating it as a business deal as much as possible, including getting everything, even the terms of repayment and position in a potential estate, in writing. Relationships with relatives have a natural strength as well as tension, especially when there is the potential for a claim of unequal treatment.
The situation with friends is quite different; a large number of business partnership relationships began as a friendship and then evolved when an opportunity was identified. However, there are still many opportunities for mutual benefits when one person has only a financial interest rather than a business one. Friendships can also die very quickly if there is a significant disagreement over monetary issues.
It is possible to successfully maneuver through this minefield of difficulties, but like all business ventures, you must do your due diligence before you make the initial proposal for funding. This is true even if your proposal is being made to a parent. As the author points out several times, there are natural advantages to receiving funding from relatives and friends, not the least of which is that in most cases they have a natural desire for you to succeed.
All of this is covered in this book, including the delicate task of approaching someone you know personally and asking for a business loan. The best advice that you could ever be given is to be prepared and treat it as a business arrangement rather than as a favor. It may in fact be a favor, but viewing it that way is a path to disaster. That advice is repeated over and over again and sample forms are included so that the favor is treated as a business relationship.
The best way to run a business is to run it like a business and that includes the situations where personal relationships are used to aid and expand the business. A great deal of what I read in this book was consistent with my experience and I strongly recommend that any person in need of funding for a business read this book before they start shopping for assistance. The best source of funding might be at your holiday dinner table or on the speed dial list of your cell phone.

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- Very good resource for small business financing!

The first thing I noticed about "Business Loans From Family & Friends: How to Ask, Make It Legal, & Make It Work" by Asheesh Advani was that the book had a foreword by Richard Branson. Having admired the founder and chairman of the Virgin Group, I figured if he'd endorsed it, I'd take a look. I was not disappointed.

The book covers a topic that you don't see that often. Sure, there are books on entrepreneurship out there that suggest a source of funds may be family and friends, but this book delves into the subject matter at a much greater level and provides a lot of practical advice on the topic.

The book is divided into eleven chapters with the following titles:

Why Raising Money From Family and Friends Is For You and Yours
Checking Out All Your Financing Options
Basic Legal and Tax Issues of Business Loans From Family and Friends
Deciding Who to Ask for Money
Preparing Your Business Plan and Your Fundraising Request
Deciding Interest Rate, Repayment Schedule, and Other Loan Terms
Drafting a Loan Request Letter
Making the Kitchen Table Pitch
Preparing a Promissory Note, Security Agreement, and Other Loan Documents
How to Be Your Own Investor Relations Department
Handling Gifts From Family and Friends

For anyone who is looking for small business financing, this book may have just the information you need. There is a lot of useful information here, and one of the best things I believe is that it gets the reader thinking about costs and sources of money for their business venture.

The book also comes with a CD ROM that contains a number of forms and worksheets. These are also found in Appendix B. Sample promissory notes, security agreements, and letters are a few of the documents included.

Nolo does an excellent job at making legal information accessible to everyone, however, depending on your situation, you may still want to seek out legal advice regarding any loan agreement you enter. However, this book is a great start and a very good resource for anyone who is looking to finance a small business and needs to raise money from family or friends. Very good resource for small business financing!

Reviewed by Alain Burrese, J.D., author of Hard-Won Wisdom From the School of Hard Knocks and the dvds: Hapkido Hoshinsul, Streetfighting Essentials, Hapkido Cane, the Lock On Joint Locking Essentials series and articles including a regular column on negotiation for The Montana Lawyer. Alain Also wrote a series of articles called Lessons From The Apprentice.

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- Yeah, it's a good book, but

I couldn't get it to work for me.

This is a well put together book, if you are the extremely anal-retentive, organized, and "in need of money and happen to have a rich uncle" type. Perhaps Paris Hilton can use it if she ends up broke and still wants to start a hotel chain. I am a serial entrepreneur, but I tend to finance by the seat of my pants. This book is tailored to those who are far more financially conscious than I am. Look: If you are the creative type (you dream up concepts, products, services, and you can design labels, websites, catalogs, and artsy stuff like that) this book will depress you. It is good advice, but it is just too hard to get the organizational skill set to make it all work. BUT--if you are the academic type and have "just been looking for the right way to phrase your request," or you like blue-print level step-by-step instructions on extracting cash from friends and family--and you happen to have a winning smile, this book may be for you.

If the price does not dissuade you, this book is worth the investment. But if you are really reading this wondering if this is THE BOOK that will make a real difference, and you can't afford to buy 7 different books on the subject, you may want to wait until your local library gets it. This book is hard to implement. It is not as simple as reading it, filling out a few forms, and handing them to daddy to sign. That doesn't mean you can't get funding. It means that getting your family to invest their life savings in your brilliant ideas is a tough road to hoe, and this book will show you how--but it won't do the work for you. Not at all. (Sorry!)

As always, thanks for reading, and seriously: Good luck with your ideas! :-)