Are family and friends a good source of finance for your business?

If you’re struggling to raise finance for your business idea it might be tempting to raise the money you need from friends and family. There’s good chance they’ll help but is it a good idea?

Borrowing Startup Capital from Friends and Family: The Pros

1. You Can Get It -Borrowing from banks will often require collateral, finding investors means having a big enough idea to deliver a return for you both. If you don’t tick either of those boxes, family and friends may be an option.
2. No Interest - Friends and family will probably not ask for interest payments - saving you money. You may not even have to give up any equity.
3. Flexible Repayments - There’s a good chance that you won’t have to pay back what you borrow on a strict schedule - handy when your cash flow is unpredictable.

Borrowing Startup Capital From Friends and Family: The Cons

1. You might lose it: It’s a fact of life that some businesses fail. How will you feel if you can’t repay what you borrow?
2. They might back you anyway: I say anyway, as in, even when your idea isn’t that good. Finding bank funding or investors to back you means proving your business plans are sound and that your idea is likely to make money.
3. Mixing Business and Personal: What happens when Dad wants to get involved in the business because he lent you the money? Do you really want to mix your business and personal lives in that way?
4. Lack of Professional Advice: Finding an outside investor usually means finding someone with experience in business - and maybe even contacts in your industry. Either way, they can bring more to the table than just money.

Ultimately many small businesses do turn to family and friends when it comes to finding finance for their startup idea. It can work, but it’s certainly worth giving it a little thought before you start hitting up Mum and Dad at the Christmas table this year.