MBE 2014
Minority Business Enterprise
Tips for Borrowing Startup Funds from Friends or Family
By Caron Beesley
US SBA
I
f you’re starting a busi-
ness
that
requires
significant
financial
investment up front, finding
a source of funding can be a
challenge, especially since
the average cost of starting a
business is $30,000. This is
particularly true for young
entrepreneurs who lack a
strong credit history or
don’t want the hassle of
dealing with banks or pri-
vate lenders.
Once these startup entre-
preneurs
are
done
considering their options,
it’s not unusual for them to
ask friends or family for
startup cash. After all,
unlike private investors or
banks, these people know
and trust you. It’s possible
they can get you quicker
access to cash with fewer
flaming hoops to jump
through. On the flipside, if
your business fails or you
are tardy in repaying the
money, you may be headed
for some conflict with the
aforementioned family and
friends.
So what’s the protocol for
approaching an informal
investor such as a friend,
mentor, or even a family
member? How do you work
with them once you’ve
secured an investment?
Here are some key factors to
consider:
1. Choose your Financier
Carefully. Don’t just turn
to Dad or your best friend
because that’s who you
know. Select someone
with solid business skills
who knows the risks and
benefits of what they are
getting into. Remember,
if your business doesn’t
work out and you can’t
repay your obligations,
relationships will suffer.
At the very least, narrow
your list down to friends
or family who have faith
that you will succeed,
who understand your
plans and are clear about
the risks.
2. Demonstrate Passion
and Due Diligence. Hav-
ing an idea is one thing
but proving that your idea
ness plan. For example, if
you need cash to buy
inventory, assess your
costs and ask for the min-
imum that you need to get
you
through
three
months. Once you have
shown your ability to
repay that initial invest-
ment, you’ll be in a better
position to ask for more
money should you need
it. And always remember
to show and communicate
your business progress
along the way, even if it’s
correcting
mistakes
you’ve made with your
Remember to show and
communicate your business
progress along the way, even
if it’s correcting mistakes
you’ve made
is viable is another. Be
sure you’ve done your
research and due dili-
gence before presenting
your idea and asking for
money. It’s a good idea to
write a business plan,
even if it’s a mini-plan
that demonstrates the
steps you’ve taken to
research your market and
work out your potential
profitability. Most impor-
tant, it should spell out
what you need the money
for.
3. Be Realistic About How
Much Money You Need.
Instead of asking for the
maximum, consider what
you need to get you to a
certain point in your busi-
business strategy.
4. Decide What You Want
– A Loan or a Share in
the Business? Think
carefully about this one.
A loan will require repay-
ment over time (which
you’ll need to be confi-
dent you can do) while a
direct investment in your
business is usually made
in exchange for an active
role in how the business
is run. The latter can be
helpful if you need men-
toring guidance or “skin
in the game” from some-
one who knows the
business and can help you
succeed. However, think
hard about whether you
want your family or a
Page 8 The Portland and Seattle Skanner October 1, 2014
friend involved in your
business operations on a
day-to-day basis. Like-
wise, what are the
emotional consequences
if you are unable to repay
the loan? These are all
things to think about.
5. Use a Peer-to-Peer
Lending Service. To help
keep business and emo-
tions separate, consider
structuring a loan through
a peer-to-peer (P2P) lend-
ing company. P2P firms
don’t provide the loan;
instead they act as an
intermediary or broker
between you and the per-
son who has given you
the loan. You and your
lender decide on the
repayment terms and the
P2P company manages
the loan repayment on
your behalf – for a fee.
This eliminates the incon-
venience of writing a
check each month and
also gives your lender
confidence that he will
actually see money being
repaid without having to
chase you.
6. Come up with an Agree-
ment With a Repayment
Plan. Even thought you
may know your lender or
investor well, remember
that this is a business
agreement. Treat it as
such. The agreement
should detail your busi-
ness plan, how the funds
will be used, how
progress will be meas-
ured, and how repayment
will be made. If the
investment is a stake in
your company as opposed
to a loan, clearly outline
the potential risks so your
family and friends are
100 percent sure about
what they are getting into.
SBA Accepting 2015 Awards Nominations
T
he U.S. Small Business Adminis-
tration Seattle District Office is
proud to announce that SBA’s
online portal is ready to accept nomina-
tions for its 2015 National Small Business
Week Awards, including the annual Small
Business Person of the Year award.
SBA has been following the mantra -
Smart, Bold and Accessible in the way the
agency conducts business. This is now the
third year SBA has been using the online
portal submission process, a great and
smart improvement from years past. The
improved
dedicated
web
portal
http://awards.sba.gov provides all the
guidelines and has made it much easier to
submit and track submissions of nomi-
nees for National Small Business Week.
Since 1963, National Small Business
Week has recognized the outstanding
achievements of America’s small business-
es for their contributions to their local
communities, and to our nation’s economy.
SBA Awards given include:
National Small Business Person of the
Year
Phoenix Awards
Small Business Prime Contractor of
the Year
Small Business Subcontractor of the
Year
The Dwight D. Eisenhower Award for
Excellence
SBA 8(a) Graduate of the Year
Exporter of the Year
Small Business Development Center
(SBDC) Excellence and Innovation
Award
Women’s Business Center (WBCs) of
Excellence Award
Veterans Business Outreach Center
Excellence in Service Award
Small Business Investment Company
of the Year
All nominations must be submitted
online, postmarked or hand delivered to
the SBA no later than 3 p.m. EST, Mon-
day, Jan. 5, 2015. In addition to the portal,
nominations can also be sent directly to
SBA’s Seattle District Office – for contact
information visit www.sba.gov/wa, call
(206) 553-7316 or visit in person at 2401
Fourth Ave., Suite 450 in Seattle and 801
W. Riverside Ave., Suite 444 in Spokane.