Happy Tuesday everyone!
So this morning someone in one of my small business groups asked a sort of tough, yet important question. They asked, “How exactly do you ask family for startup money?” and immediately my mind flashed to all of the times I’ve needed to borrow money.
For most people, especially in this industry there is the sour taste of pitching friends and family, and to be honest it’s always a bit awkward. So how do you ask friends and family for money?
What You Need To Understand
First, you should probably understand that asking for money from friends and family is as old as time and that a majority of small businesses start with “love” money, or money from friends and family.
Second, there is no EXACT process to asking for money like with a bank or something, but there are a specific things to keep in mind.
When you’re borrowing from family, most of the time they are willing IF they see that it’s a worthy investment in you – not your business, but you.
In other words, a prophet has no honor in his own country. They know you and your flaws, and is the case with most family, that’s the majority of what they see, so while they may want to help, you want to be very honest and straight-forward.
Tell them why you need the money, what you’re going to do with it, show them how they’re going to get their money back, and if possible when they’ll get their money back, but even more than that present a side of yourself that will bolster their confidence in you, and let them see your determination to succeed and confidence in why you’re asking.
This will be a decision for them based more on emotion than anything else, usually fear of loss. I know that from experience, not asking for startup money but money for other things when I needed to.
I’ve noticed that unless friends and family have a level of comfort that their money is going to be safe and be returned, lending you money isn’t a problem, regardless of what situation they are in, because for a lot of people, lending money means they go without until it is returned.
Speaking From Experience…
A good example is when I was tasked in coming up with the money to buy the family house. We were basically in competition with someone else who wanted it just as bad (it’s a beautiful home and they wanted it for a relative) and it became a down payment bidding war.
Every time we thought it we were in the clear, just before we’d settle and proceed with the paperwork, the other person would put down more money and they asked us to match it.
Let’s just say that my own funds were tapped several thousand dollars later, and I was still a couple thousand short by the third time the other person put more money down, at which point I turned to my sister, who asked a friend that’s a small business owner.
In a nutshell the entire thing came to “that’s a lot of money to lend, are you sure I’m going to get my money back?”
The next few days was spent convincing both my sister and her friend that he’d get their money back, and when they’d get it back.
Another example… months ago I was approached by a young man asking for help with dealing with his mother. She was a wealthy person, however she wouldn’t lend him the money to start his business. The reasons she would where the same – she knew his faults and the times he got into trouble and everything else negative.
In this case she was more scared that he was in some sort of trouble, but the fear was also there that she wouldn’t get the money back – until he gave her a plan showing her where the money would be spent, that others are making money, and he would have been able to pay her back.
One more example…
I recently came out of a cash flow problem where the demand for money was way higher than the rate at which money was coming in, so often times I’d end up borrowing money from friends and family to fill that gap, then pay them back later.
Nothing big. A few hundred dollars here, a few hundred dollars there and it boiled down to the same thing…
They knowing exactly where the money is going, how and/or when they’re going to get their money back, and their confidence that they will get it back. That’s always been my experience with borrowing money from family and friends.
I gave those example to say this… have a repayment plan for a worst case scenario. Having a plan is great, but, unless your family is a family of entrepreneurs, they’re thinking worst possible case, and bolstering confidence is, to me, a make or break between getting the fund you need or not.
21 Ideas To Raise $500-$5,000 For Your Business
Thankfully ever since I learned how to generate $500-$5,000 quickly and whenever I needed it, I really haven’t had to borrow any large funding since, and this is something I want to pass on to you since you’ve taken the time to read this post.
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