You may not have the money to bankroll your business right now, but someone you know might. Leslie Tayne, a financial attorney, debt therapist and author of Life & Debt: A Fresh Approach to Achieving Financial Wellness (Gateway Bridge Press, 2015), said finding someone with a ready cash flow can help you get more accomplished sooner. She suggested turning to a relative or friend to borrow money.
“If you want interest-free cash and are confident that you will have success from your business, then ask a family member [or friend] to give you a loan,” Tayne said. “I don’t always recommend [it], but in this situation, you can consider it and have a time frame set in when you can pay them back.”
You might also see if family members and friends are willing to invest in your business, said David Walter, CEO of Electrician Mentor. If you go this route, be sure to make it a formal process. When Walter took this approach, he drew up a written formal agreement with each investor to avoid conflicts and potentially damaging arguments – or worse – down the road.
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“All of my agreements [included specifics on] how much money was invested and what rate of return was expected,” he said. “Overall, it turned out to be a very positive experience.” Another possibility is finding a business partner. However, only take this approach if you’re willing to cede some control of your business.
Matt Scott, owner of Termite Survey, said it’s best to hire an attorney to develop a partnership agreement that includes an “exit plan for the relationship,” along with financial details, expectations, and a specific breakdown of who will control which aspects of your operation. [Read related article: The Pros and Cons of Business Partnerships]
Key takeaway: Getting a loan from a friend or family member and finding a partner are viable alternatives to funding a new business with a bank loan or business credit. These options require a detailed written agreement.