How to Ask Friends and Family to Fund Your Business

Your business needs funding, but you might not want to turn to traditional banks and lenders. One option to consider is to ask friends and family to help fund your startup business. Many new business owners bootstrap or self-finance their business but it does not mean that every entrepreneur saves up their own money, opens a line of credit, seeks a loan from the bank. Sometimes for some people it makes more sense to simply ask friends and family to help.

It might be awkward to ask for friends and family for money, but it helps to be serious about your business and convince them that you have a solid plan to make it successful. Read the following tips to help you ask friends and family for startup cash.

Have a Solid Business Plan

No matter who you ask for help whether it is a longtime friend or a parent, you need to be professional about the discussion like you would if you were talking to a banker for money. You would not try to seek a loan from a bank without a business plan so you should be prepared to show yours to your friends and family too. Your business plan needs to include your financial information, milestones, and metrics that show how you plan to make your venture profitable.

Ask for Enough Money

You might feel like you want to ask for as little as possible when talking to your friends and family because you do not want them to give you their hard-earned cash. However, this is not the right approach. You need to ask for enough money because if you do not have enough to start the business, it will not succeed.

You need to consider these pools of money:

  • Initial investment: money needed to get the business ready for customers. These are also called startup costs.
  • Working capital: money needed to keep the business going until you hit break-even.
  • Home capital: money needed to survive while your launch your business. This helps you pay your own bills.

Make a Payment Plan

You need to make a payment plan on how you plan to repay your friends and family. If you are not planning on offering equity in your company in exchange for cash, you will need to figure out a plan on how you will repay everyone with interest, just like you would a business loan. It is recommended that you schedule the first payment six months after the business opens.

Your plan should also account for any “what ifs”. What if you cannot make a payment one month? You should have a plan in the case this happens. By having these issues worked out ahead of time you will save yourself problems in the future. Also, put everything in writing and have a legal document prepared.

Expect Investors to Take an Active Role

The friends and family member that invest in your business may want to have a say in how things are done. It is something you should discuss before raising money from people that are close to you. Investors will want to protect their investment, even if it is your parents. Expect them to ask questions about the business and give you unsolicited advice. Remember to not take it personally because at the end of the day it is still a business.

You want to show your family you are professional and are prepared. Show they you are ready by having all the necessary documents and by answering the questions they have. Practice your pitch beforehand and think through your answers to any objections that may arise.

There are all kinds of reasons to avoid mixing family and business as you consider your funding options for your business.

Do Not Let Relationships Suffer

It is up to you to make sure that your business partnerships do not hurt the relationships you have friends and family. After delivering your pitch, make it clear to everyone that you will not take a refusal personally. If you have been extended money, easy any anxieties your lenders may have by paying the loan back in full and on time. This will help establish trust. Also, do not forget to be transparent about the progress of your company.