When it comes to business and family, especially when there’s money involved, it’s probably best to keep your personal relationships separate to you financial situation.
Many times than not, if you borrow money from friends or family, for business related start up capital, you are essentially gambling with their money, with that in mind, I would save the upset and borrow from a bank or start up financier instead.
In this article, we will go through some tips on how to get your hands on start up capital, what the interest is like and if you should approach a high street lender (a bank) or an investor (financier).
Should you borrow money from family or friends for start up capital?
This is a difficult question to answer and will really depend on your personal relationship with your family or friends.
If you decide to go ahead and borrow money from family or friends, make sure you treat the loan as a business transaction. This means that you should draw up a contract, agree on interest rates and repayment terms, and put it all in writing.
You should also be prepared to answer difficult questions about your business, such as why you need the money and how you plan to repay it. It’s important to remember that if things go wrong, you could damage your personal relationships as well as your business.
Keeping it professional and having these things in place can avoid upset and ruined relationships, they know what their getting themselves into and you know the responsibility you have taken on, seeing this written down in black and white will give each party more reassurance and will avoid those awkward conversations in the future.
Should you use friends or families money or should you avoid this and borrow money commercially from a financier or bank?
If you’re looking for start-up capital, you might be considering borrowing money from friends or family. While this can be a good way to get the money you need quickly, it’s important to think carefully before taking this step.
Borrowing money from friends or family can put a strain on your personal relationships, so it’s important to make sure that you’re doing it for the right reasons. You should only borrow money from friends or family if you’re confident that you can repay the loan and if you’re prepared to put your personal relationships at risk, always remember this and make sure you do your best in keeping to your promises.
If you’re not sure whether borrowing from friends or family is the right option for you, consider borrowing money from a bank or an investor. This can be a more expensive option, but it’s usually less risky for your personal relationships.
Borrowing money for a start up – how does it work?
If you’re thinking about borrowing money to finance your business, there are a few things you need to know. First of all, you’ll need to decide whether you want to borrow from a bank or an investor.
If you choose to borrow from a bank, you’ll usually be able to get a lower interest rate than if you borrow from an investor. However, banks will usually only lend money to businesses that have been established for at least two years so this can be problematic if you’re just starting out.
If you choose to borrow from an investor, you’ll usually have to pay a higher interest rate. However, investors are often more willing to lend money to new businesses if your idea and business plan are strong, always make sure to do your due diligence if you are borrowing from an investor, you can use an online corporate fillings directory and search for their names to see which businesses they are already involved in which may indicate any possible conflicts of interest or reasons they would want to invest in your idea.
Another thing to consider is the repayment terms. Banks will usually require you to repay the loan within five years, while investors will often give you longer to repay the loan, an investor is more like having a silent partner so to speak.
You should also think about how you’re going to use the money you borrow. Investors will often want to see a detailed business plan outlining how you plan to use the money, so it’s important to have this ready before you approach them.
How to get start up capital or financing for a new business idea?
There are a few different ways to get start-up capital or financing for a new business idea. The most common way is to borrow money from a bank or an investor, but you can also borrow money from friends or family which we have already spoken about above.
Another way to get financing is to win a business competition or obtaining a grant. There are many different competitions and grants available, so it’s definitely worth doing some research to see if you’re eligible for any of them.
You could also look into crowdfunding, which is where you raise money from a large number of people by asking them to donate to your business idea on the promise they will either obtain a stake in your company or obtain a discounted rate for your product or service.
There are quite a few crowdfunding websites online that are known for this, such as Kickstarter, Indiegogo, GoFundMe and Crowdfunder, all are very reputable places that you can register, put your idea and business plan forward and wait for the investments to come through.
What is the interest like if you borrow money for a start up?
The interest rate on a loan for a start-up business can vary depending on who you borrow the money from. If you borrow from a bank, the interest rate is usually lower than if you borrow from an investor, but banks will only lend money to businesses that have been established for at least two years so this can be problematic if you’re just starting out, having said that, if your business plan is solid, banks may still lend to you but don’t be disheartened if they reject you, BANKS do unfortunately reject a lot of applications.
If you borrow from an investor, the interest rate is usually higher. However, investors are often more willing to lend money to new businesses if your idea and business plan are strong. Always make sure to do your due diligence if you are borrowing from an investor by checking their background as mentioned above.
Is it better to borrow from a bank or an investor?
There is no easy answer to this question as it really depends on your individual circumstances. If you’re just starting out, it may be difficult to get a loan from a bank as they often only lend money to businesses that have been established for at least two years so this may narrow your possibilities in terms of choice, so you may find yourself having to pitch to investors..
If you’re looking for a larger sum of money, it may be better to approach an investor as they are often more willing to lend money to new businesses. However, the interest rate is usually higher as their risk is higher, so it’s important to weigh up your options and decide what’s best for you and your business, always make sure that you can afford to pay back any loans you may take out.
Final Thoughts
There are many different ways to get start-up capital or financing for a new business idea, and it really depends on your individual circumstances as to which route you decide to go down.
If you’re looking for a loan, you could approach a bank or an investor, but if you’re just starting out, it may be difficult to get a loan from a bank as they often only lend money to businesses that have been established for at least two to three years.
You could also look into crowdfunding, which is where you raise money from a large number of people by asking them to donate to your business idea on the promise they will either obtain a stake in your company or obtain a discounted rate for your product or service and as a last resort, borrowing from family or friends but as we said, make sure you do this properly and be sure that you keep to your end of the deal otherwise, you could lose friends/family.
Whatever route you decide to go down in terms of financing your business idea, always make sure to do your due diligence and research each option properly before making a decision. We hope this article has been helpful and gives you a better understanding of the different ways you can get start-up capital or financing for your new business idea. Good luck!