Loans from friends and family are common sources of funds.
What Are Friendship Loans?
What Are The Terms?
Should There Be A Loan Contract?
What Else Should I Be Aware Of?
What Are Friendship Loans?
- They are loans from friends and family.
- Unlike banks and financial institutions, they do not require collateral. They provide you with loans because they believe in you.
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What Are The Terms?
- Most of the time, friendship loans are very flexible.
- From repayment period to interest rates, everything is negotiable and based on trust.
- When your business is going through hard times, it is easier to get your friends and family to extend loans to you.
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Should There Be A Loan Contract?
- To avoid any misunderstandings, you should draw up a simple agreement stating the repayment date and terms of the loan.
- You can do this yourself or seek help from a lawyer.
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What Else Should I Be Aware Of?
- You should treat your friends and family as you would treat professional investors. Give them your business plan and report your progress.
- Make sure your family or friend understands it is a loan. He/she may think it is an investment and expect a share of the profits.
- State clearly if your family or friends have an operational role to play. Can they help out in the running of the business? If they do, what are their responsibilities and powers?
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