Financing My Dream: How to find the funds for my start-up?
Financing my startup with money from family and friends; a good idea?
Although the first source of funding for the entrepreneur is usually his own funds, money from relatives and friends is often the first recourse in case of need. Indeed this type of funds is referred to as “love money”. This type of investment is referred to as “patient capital”, meaning that although it is sometimes subject to specific repayment terms, it is more forgiving than a loan from a banking institution or other sources. However, is it always a good idea to borrow money from family and friends?
Of course, there is the whole emotional issue of ego, the stress of succeeding, the interference of certain people in your operation, etc. Beyond these initial considerations, it is essential to clarify the terms of the loan well before obtaining it. For example, what is the term of the loan? Is it only a loan of money or will your family member or friend be looking to become a shareholder in your future business? There is nothing more complex in business than interpersonal relationships, especially with family and friends. That’s why it’s important to keep your feelings separate from your business relationship, because things can quickly get out of hand.
Here are some tips on how to handle this type of situation:
- Show your business plan to your family and friends before you ask them for money. This will have the effect of demonstrating the seriousness of your approach.
- If you are offered financial assistance, think about how much you really need and show your investor that you are building the repayment of this loan into your financial model. If someone wants shares in your business in exchange for their down payment, take the time to think about it.
- Make sure you are very transparent about your business finances. Never lie about your difficulties and always try to meet your payment deadlines.
- Sign a clear document as to the terms and conditions of payment and make sure you have a copy.
- Don’t forget to say THANK YOU!
Applying for a loan from a bank for my business, how does it work?For the longest time, banks were the primary sources of financing for businesses. Although the world has changed a lot, it is still natural to go to the bank to get a loan or line of credit. There are many stories and even urban legends about how financial institutions finance start-ups. So in this third article, I will try to temper your expectations and give you the straight goods.
Banks like to finance projects with a few years behind the belt.
Banks never fund startups.
You generally need to have equity invested in your business to get financing from the bank.
Banks often like to create “funding partnerships” with other entities.