First of all, if you ask family and friends for money, make sure it’s a loan, not an equity investment

Borrowing money from friends and family to finance a new business is a terrific idea — in theory. Banks and other lenders will demand airtight business plans and financial statements. Your grandma Edna might demand a hug. But be aware of the potential drawbacks of so-called “easy” money.

If you allow too many friends and family to own a legal stake in your business, then you’re setting yourself up for trouble. Legally, you’ll have to run every major business decision by them first. And if you don’t consider their opinion, they can sue. Talk about an awkward family reunion.

That said, private online installment loans CO loans can offer significant advantages over traditional loans. Interest rates — if interest is even charged — are generally much lower than those offered by banks. Private loans are also an important show of support (both financial and emotional) in the early stages of a new business [source: Advani].

Unfortunately, they’re also some of the hardest loans to get

One crucial rule: Get everything in writing. It will make both sides feel more secure about the transaction and rule out any potential legal problems down the road. You can find free boilerplate loan documents online.

There’s something romantic (in an economic sense) about financing a successful small business by maxing out your credit cards. We hear exciting stories about this all the time. What we don’t hear are the stories about new business owners who maxed out their credit cards and then failed.

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