What’s the best way to manage Friends & Family loans? I find that doing business with Family and Friends can be messy at times.
I agree that going the friends and family route can get very messy, and I recently helped a friend raise about $50,000 for his company doing exactly this. First and foremost, make sure all parties involved understand that this is a business transaction (yourself included). Determine what kind of investment you’re going to solicit from friends and family and to put everything down in writing. If it’s a loan, why do you need the money and what are the terms of the loan? If they’re buying into the company, there should be documentation that clearly explains how much equity they’re getting for that investment and how much say will they have in the business. Once you’ve raised the money, treat them no differently than you would any other investor. Also, avoid the “hook-up!” Oftentimes family members will expect discounted (or free) products/services because they invested in your idea. Going down that road leads to disaster. Avoid it.