Monday, February 21, 2011

Borrowing $$ from family? Do it right!

It's common enough. Especially if you already have debt from student loans. You go to a well-off (or at least better-off!) family member to help you start your business. Still, you are likely to maintain healthy family relationships if you do this right and protect your family as much as you can if you ever had to default on the loan. Here are some tips to help you keep happy family relationships: 1. Don't think about borrowing from anyone until you have done a thorough business plan. Know exactly how much you need, what you need it for, and how you will market and grow your business to pay the loan back! If you aren't organized and grown up enough to do this work, you are not likely to be grown up enough to run a business in any case. 2. Establish the amount of the loan and terms of repayment in writing...with signatures. 3. Treat this loan the same as you would a bank loan. Make your payments in full and on time. 4. Keep you family updated about what is happening at your business. Send them regular reports in writing. That way, you don't have to discuss it during Thanksgiving dinner or other family gatherings! 5. If things go badly and you cannot make a payment, don't avoid the issue. Tell them immediately and request an extension. 6. If you think that you may have to default on the loan, don't avoid that issue either. Doesn't your family member deserve to know about your problems first? 7. Do a UCC Filing your loan as part of the initial establishment of the terms. ( This gives your family member a better chance at getting their money if you have repayment problems or even go into default, and especially if you are also going to borrow some from a bank. 8. Don't even consider borrowing money from someone in your family who cannot afford to lose it. If this person can lose the money without causing financial hardship, you will sleep better, and so will they. So it's better NOT to borrow money from friends or family if you can avoid it. I have only done it once in my life and it worked out fine, but added a level of stress to the relationship that was undeniable until it was paid off. If you decide this is the only way you can get your business started or up to the next level, be sure you know what you are doing and why and what actions are going to allow you to grow enough to pay the money back.
Honora Wolfe writes and speaks on business and practice success at schools and conferences all over the world. Her upcoming classes include an all day workshop at the NEW England School of Acupuncture on March 20th, an Internet Marketing class for the AOBTA conference in Austin on April 7th, and a keynote speech on business success at the Acupuncture Society of NY on May 22nd.

1 comment:

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