When someone is looking to start a new business, they have a number of options for ways in which they can fund the idea. One of the most common funding options and ones which is certainly worth considering is to ask friends and family – this can be a smart funding option, but it is also one which you must be careful with and quite different to borrowing from a bank.
Pros and Cons
Raising funding from friends and family can be much easier than getting a bank loan as loved ones will often be keen to help if they are able to, plus they may even have expertise or contacts that you could benefit from. Additionally, they may be more flexible and forgiving when it comes to repayment.
Following this point, borrowing from friends and family can be risky though as it can change the dynamic of your relationship. This is why you always need to have a repayment plan, make sure that you are both happy with the arrangement and to keep them in the loop – many people decide to bring a loved one on board to help them to feel involved.
How Loved Ones Generate Money
Of course, not everyone has thousands of pounds readily available that they can give out to loved ones with a business idea. This is why equity release is a common way for loved ones to help people in today’s day and age – unsurprisingly, help with a house deposit is the most common gift from equity release at 45% while help with business is at just 2% but has an average amount of £52,341. Equity release can be a smart way for people to support their loved ones as it unlocks the value of their property for a lump sum, so if the borrower then pays back in full (and perhaps extra) then it can be an effective form of funding.
Of course, you will not want to let your loved ones down if you borrow money from them so you need to make sure that you are intelligent with your finances, you have a strong business plan and know how to handle the various business challenges that inevitably occur. The internet can be a fantastic resource for businesses but you may also want to consider taking a course first, which will help you to develop the skills and knowledge needed to succeed.
Borrowing from loved ones certainly can be a good way to raise capital for a business idea, but it is also something that you need to do with caution as you do not want it to ruin your relationship. Equity release is often the best way for a loved one to raise the capital, but you will want to do all that you can to find success with the venture and pay them back in full.