Borrowing Money from Friends and Relatives

Borrowing money from friends and relatives may sound safe and easy but it could get very complicated. Remember that this is about dealing with people you personally love and care for. If anything goes wrong, you may expect some strain in the relationship no matter how strong it is. If you are willing to take that risk, however, you can look at the bright side. Borrowing money from people who personally know you is much easier and requires lower repayment. Here are some ways in which you can keep things under control:

Pitch your plan.

You cannot just borrow money from friends and relatives without explaining where the money is going to. Explain your business plan as you would to any financer. Of course, the conversation could be less formal but at least you tell them where exactly their money is going.

Explain the risks.

After explaining your plan, tell them about the possible risks. Do not give them the wrong impression that your venture is totally risk-free.

Try to be as formal as you can.

Even if you are eliciting the help of friends and relatives, it should still be all business. Treat your friends and relatives just as you would any creditor. This means that you should expect them to take you to court if you cannot abide by the agreement. Have your business transaction in writing. Provide them a promissory note on when you are planning to pay back.

Clarify their role.

Make sure they know that they are financers or creditors and not really business partners. They may expect that they have a say on your business maneuvers. If that is not the way you want it, tell them so.

Talk about a repayment plan.

You cannot just borrow and not talk about how you will pay your friends and relatives. As this is about a purely business transaction, you should also recognize your responsibility to pay back as promised.