Friends, Money, and Business

[AJ Drew]

American dream rambling.  If you care to share about your business, please do.  Great winter topic.

Last week, three friends have offered to lend me money for three different projects.   A couple thousand here and there.  Big to me, but from folk who wont go hungry with out it.  Thing is, even if I were not worried about hurting the friendships with failure, I would have declined because of what I have seen happen over and over again when people borrow money for business efforts.

It seems to me that if it is not your money, a person is not nearly as inclined to make a business effort work.  It also seems to me that the weight of a loan can also draw a business down. 

So what do you think is the best route?  Could the better route differ with person? 

 

[geeme]

This is the best business advice (or money advice, for that matter) that I've heard and found to be true over and over again:
 
- Best route is not to borrow. More than likely you should wait if you don't have enough saved up to start the business without a loan.
 
That said, there are some limited circumstances in which a loan is necessary, ideally only to cover a short-term circumstance that could not be foreseen. (Example, a local business opened here recently then a month later had to close due to a water break in the floors above them. They had unexpected water damage that could not be foreseen because it was not directly in the area of the building they had access to.) So where to get a loan?
 
- Bank or credit union. It's impersonal, no family or friend relationships to be damaged. Written agreement enforced as part of doing business.
 
- If you really need the money and absolutely have no other options, only borrow from friends or family if you execute a written agreement with the same terms you would have if you took a loan from a bank or credit union. Hold yourself to the agreement in the same manner as if it was with a bank or credit union.

 

[AJ Drew]

geemee - I think you are about right, which is why business seems so very odd to me.  Even in agriculture, it seems there is a lot of loans going on.  Folk mortgage their farm to pay spring payroll, then pay it back in the fall.  What happens when they have a bad season is horrible.

 

[Gemini Crow Sauce Company]

No matter how legal you try and get; getting stuff in writing; and al that stuff, IMO it is never good to borrow money from friends or people you know....I'm not against conventional loans, kickstarters, etc....but it is so easy for relationships to change when money comes into play....

 

[pa1966stang]

If I give money to family or friends - it is a gift. Expecting it back would just set me up for failure. 
 
I also make it a point to never ask family or friends for money either (unless in dire circumstances of course). I think its best to keep relationships separate from business for all parties involved. 
 
That said, I do have many friends that I do business with, but not in a lender/borrower relationship. All the transactions are finite. I buy this from you or you give me money for 'x'. That keeps things very defined and keeps feelings from getting hurt. 
 
TW