The question speaks for itself. There are similar questions, but I didn't find one that provides a checklist of things you should consider before and after borrowing money to fund your business.
I'd really like answers from people who have gone down the path personally. What did you do right? What did you do wrong?
There are several possible scenarios, and I'm not sure which one you're referring to.
The first one, you're borrowing money personally, and you're guaranteeing the repayment regardless of how the business does.
The second one is more of a business transaction. You're borrowing the money, and if the business makes it, you'll repay it, maybe with interest.
The third option, you're offering people a convertible note. They're basically investing, but choosing the note as an investment vehicle.
The first case in ways is the simplest, it's just a personal loan, and you'll need to contemplate what you'll do if the business fails and you need to figure out how to repay the loan.
The other two cases are not much more complicated, but you need to have clear paperwork that explains the details of repayment. Thefunded.com and other places online provide some info about that.
The most important part to remember in the last two cases: people should only lend you money that they can afford to lose. Investing in a startup is very risky, and there's a very good chance these people will never see their money.
I recently wrote this article as a guest blog post on the Startup Professional Musings Blog.
According to a report distributed by the Angel Capital Education Foundation, total startup funding from venture capital funds, state funds, and angel investors totals approximately $20.8 billion annually. Surprisingly, friends and family contributed nearly three times the amount of capital to thousands of startups each year. With approximately $60 billion in startup funding coming from friends and family, entrepreneurs must consider this as an option as they seek to launch new businesses.
Money issues between friends and family can ruin relationships. Due to the risk involved with investing in a startup, if you are requesting investment from friends and family, be sure to consider these five steps before you begin the capital raising process:
As you seek capital for your startup don’t neglect the $60 billion opportunity represented by friends and family, but tread carefully as you risk something far greater than the failure of your business--your relationships.
Today's guest blog is by Adam Hoeksema, founder of the ExecutivePlan. Adam is the author of a blog that primarily assists entrepreneurs in the process of writing powerful executive summaries, preparing elevator pitches, and hurdling the many obstacles encountered during the startup phase of a business. His blog is http://www.theexecutiveplan.com.