Friends, family and contacts
Some start-up entrepreneurs look to family and
friends for funding; many of whom may or may not have business experience.
The main benefits of such approach is obvious. Those nearest and
dearest to an entrepreneur are unlikely to demand an extortionate rate of
interest and may simply choose to invest in the proposition based on sentiment.
And that they know where to find you!
If you are in the UK, then due to FCA regulation 13/3 you should
only enter into a simple loan agreement.
If the family member is a High Net-worth individual or a sophisticated
investor then you can enter into an agreement where you agree to pay them
equity or a share
These loan deals tend to be loose in structure and typically allow
the recipient to repay the sum once the business has generated reasonable turnover
or profit and is able make repayments.
Unless you have very wealthy and understanding relatives, this is
probably not the best way to raise big amounts of money. Family and friends
usually only offer small amounts. (By small we mean under £100k)
However, you have to think about the reality of losing a friend
and, perhaps even worse, falling out with a family member if all doesn't go to
plan and you lose their money.
The next one tomorrow is new but very, very effective.
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