Many successful business ventures begin with funding from friends and family. Home business funding is particularly suited to asking your family for funding because start-up costs are usually relatively low. How you handle the transaction and repayment is crucial, since the future of the relationship may depend on it.
Advantages of Asking Family
If your family has the means to provide funding, you can be assured that the terms and conditions will be less stringent than those of a financial institution. Furthermore, because they know you so well, they probably already have a good idea of whether or not you'll repay the loan. In short, your family is a built-in character reference for you.
Keep It Professional
The lines can be blurry when asking for funding from family. It is up to you to be professional. Find out first if they are willing to hear your proposal, and then present it to them as if you're applying for a bank loan. Show them you've done your research, written a solid business plan and explain why funding your business is a good investment for them.
Communicate Your Business Plan
As with any business loan, take the communication of your business plan seriously. How well you convey your business plan will likely be the most important factor in determining whether or not they agree to provide funding for your business. Family members will appreciate seeing your plan laid out clearly, and it provides them with a strong rational basis for making their decision.
Develop a Repayment Plan
While being professional, you need to clearly express the repayment plan. Outline how you will repay the loan and over what period of time. Decide on the interest terms and offer a worst-case-scenario of what you will do to fulfill your obligation should the business fail. Then, put it in writing as a reminder to yourself that this is not a gift, but a loan!
Because your family relationships are first and foremost personal relationships, listen to any concerns that arise during the discussion and handle them seriously. If they are willing, but feel uncomfortable with the idea of funding your venture, listen carefully and reassure them that you are confident about starting the business. Convince them that you have the necessary skills and expertise to make your business a success and that you've done the research to get your business off the ground.
It may take courage to ask family for business funding. The advantages are that they have a personal desire to see you succeed and that they won't be as formal with the terms and conditions of agreeing to the loan. It is up to you to keep the process professional, present your business plan clearly and document your repayment plan. They may need to be convinced that funding your business is a good investment for them or that you have the necessary experience and knowledge to make the business a success. Whatever their concerns, listen and respond to each one.