When would it make the most sense to ask for investment capital for friends and family members? Typically, it is not possible to rely on loans from merchant accounts when the company is in the startup stage. Additionally, a new company may not want to take on the additional debt that comes from taking on loans from merchant accounts or other lenders. Therefore, asking friends or family for a loan makes the most sense.
Friends and Family Members Want You to Succeed
Venture capitalists and other lenders do not care if your company succeeds or fails. All they care about is that they get their money back with interest. This means that a lender is going to want to see your books, make sure that your company is making money and that your business has something to secure the loan with. If you don’t have anything to secure a loan with and your company doesn’t have a track record of making money, asking your friends or family for money is a good idea because they typically don’t care if it takes several years to repay that money.
Buy the Expertise of Family Members or Friends
By exchanging money for equity in your company, it may be possible to buy the expertise of a friend for far less than it would cost to buy expertise from someone on the open market. If you want to create your own payment gateway for eventual credit card processing capabilities, having a friend on board is preferable than working with a company that only wants your money and doesn’t necessarily offer the best customer service.
Your Friends or Family May Come Closer to Your Target Amount
A bank tends to make loans of $250,000 or more. If you only need $10,000, you may find that a friend or family member is able to give you that type of money with few or no strings attached. Although having $250,000 may sound great, it could become a burden if the company uses the money for some reason without any plan to pay it back.
Whether you want to buy your friend’s credit card processing experience, don’t need as much as the bank wants to give you or simply don’t have any other way to get money, asking for money from friends and family members is the way to go.