Business Loans from Family & Friends: How to Ask, How to Make it Legal, How to Make it Work

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Overview

Ask for a loan from trusted family and friends, keep everything legal and start your business without the bank!

Launching a small business isn't easy even in the best of times, and with the credit crunch, getting to opening day can seem near-impossible. And if you've got no collateral or poor credit, qualifying for a traditional bank loan will be an uphill battle at best. But you don't have to go straight to a traditional lender to find the investment cash you need. 

With Business Loans from Family & Friends, you'll get the inside details on how you can take advantage of an area of lending that accounts for more than 50% of all business start-up investment money. And, if you've already identified a potential investor, this resource will help you structure the deal so that everyone understands the details and no one gets hurt, all while staying within the law.

Business Loans from Family & Friends shows you how to approach potential lenders and present a professional loan request, and will help guide you toward an agreement that will protect both sides. You'll get complete instructions for drawing up the paperwork to formalize your loan agreement, including:

 loan proposal letter letter of intent personal financial statement promissory note

Written by Asheesh Advani, founder of CircleLending (now Virgin Money) and a pioneer in the business of managing person-to-person loans, Business Loans from Family & Friends offers you a smart way to keep family money within the family.

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Editorial Reviews

BusinessWeek
"Advani gives you the nuts and bolts: evaluating prospects, narrowing the names to a "best bets" list, and negotiating loan terms.... This guide should be as indispensable to the first-time entrepreneur as cockeyed optimism and a calculator."
The Wall Street Journal
"This is an excellent resource to find the information, documents and calculators you need to put a deal together..."
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Product Details

  • ISBN-13: 9781413310788
  • Publisher: NOLO
  • Publication date: 11/2/2009
  • Edition description: Paperback and CD-ROM
  • Pages: 287
  • Product dimensions: 6.98 (w) x 9.02 (h) x 0.61 (d)

Meet the Author

Asheesh Advani is an entrepreneur, investor, and author. He pioneered the business of managing person-to-person loans between relatives and friends when he founded CircleLending in 2001, which was acquired by Richard Branson's Virgin Group in 2007. As a columnist for Entrepreneur, he is a frequent speaker at industry conferences and a media commentator. He has been quoted in The Wall Street Journal, The New York Times and Time Magazine, and has been profiled on PBS and NPR. He is a graduate of Oxford University and the Wharton School, and is an active member of angel investment groups and Young Presidents Organization.
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Table of Contents

Your Business Loan Companion 1

1 Why Raising Money From Family and Friends Is for You and Yours 7

What's in It for You, the Entrepreneur? 8

What's in It for Your Family and Friend Lenders? 14

Mixing Money and Relationships Can Work 19

2 Checking Out All Your Financing Options 23

Your Choices for Small Business Financing 25

Minimizing the Amount You Need 27

Tapping Into Your Own Resources 28

Connecting With a Bank or Other Institutional Lender 32

Small Business Administration (SBA) Loan Programs 37

How to Check Out Social Lending Networks 41

Equity Financing and Angel Investors 41

How Business Advisers and Mentors Can Help With Your Financing 44

3 Basic Legal and Tax Issues of Business Loans From Family and Friends 47

Your Obligations When Accepting a Business Loan 48

Tax Implications of Your Choice of Capital 54

How Your Business' Legal Structure Can Affect Your Fundraising Efforts 59

4 Deciding Who to Ask for Money 69

Brainstorming a List of Prospects 72

Narrowing Your List 74

Creating Your Best Bets List 79

5 Preparing Your Business Plan and Your Fundraising Request 83

Preparing Your Business Plan 87

Calculating the Amount of Your Business Loan Request 95

Dividing Up Your Request Among Prospects 98

Putting It All Together 101

6 Deciding Interest Rate, Repayment Schedule, and Other Loan Terms 103

Will You Offer Collateral? 106

How Much Interest Are You Willing to Pay? 112

When and How Do You Want to Repay? 116

How to Figure Out Your Payment Amount 124

What Are Your Options as to Payment Logistics? 127

7 Drafting a Loan Request Letter 129

What to Include in a Loan Request Letter 130

Using the Sample Loan Request Letteras Your Guide 134

What's Next? 136

8 Making the "Kitchen Table Pitch" 137

Planning How You'll Approach Your Prospective Lender 138

Making a Compelling Pitch 145

Handling Hesitancy and Concerns 151

After Your Prospect Says "Yes" (or "Maybe") 157

Dealing With Your Propects Who Say "No" 163

Negotiating Final Terms 165

9 Preparing a Promissory Note, Security Agreement, and Other Loan Documents 167

Why Documentation is Important 169

Formalizing the Promissory Note: Individual and Sole Proprietor Borrowers 198

Signing the Promissory Note: Business Borrower 199

Notarization of Promissory Note 200

How to Close the Deal for a Private Loan 201

Creating Your Repayment Schedule 202

How to Change a Promissory Note 208

10 How to Be Your Own Investor Relations Department 209

Communicating Your Progress to Lenders 210

Repaying Responsibly 213

Keeping Loan Log 214

Acting Responsibly When You Can't Make a Payment 216

Changing Your Repayment Schedule and Preparing a New Promissory Note 220

If You Have No choice but to Default 222

11 Handing Gifts From Family and Friends 225

Dealing with IRS Limits on Gits Amounts 227

Why You Need-and How to Get-a Git Letter 229

When a Loan Turns Into a Gift: Creating a Loan Repayment Forgiveness Letter 230

Appendixes

A How to Use the CD-ROM 233

Installing the Files Onto Your Computer 235

Using the Word Processing Files to Create Documents 236

Using the Print-Only File 238

Files on the CD-ROM 239

B Small Business Loans Forms and Worksheets 241

Best Bets List 242

Start-Up Costs Worksheet 243

Recurring Costs Worksheet 244

Collateral List 245

Loan Request Letter 246

Promissory Note (for an amortized loan) 248

Promissory Note (for a graduated loan) 251

Promissory Note (for a seasonal loan) 254

Promissory Note (for an interest-only loan) 257

Promissory Note Modifications for a Loan to a Business 260

Promissory Note Modifications for Signature by Notary Public 261

Security Agreement 262

UCC Financing Statement 265

UCC Financing Statement Instructions 266

Loan Log 267

Gift Letter: Basic 268

Gift Letter: Loan Repayment Forgiveness 269

Index 271

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Sort by: Showing 1 Customer Reviews
  • Posted November 5, 2009

    Very helpful

    This book is a helpful resource for raising money. It helped me tremendously to understand the issues when developing my fundraising plan.

    1 out of 1 people found this review helpful.

    Was this review helpful? Yes  No   Report this review
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