what is the risk involved in borrowing money from relatives?

Answer 1

Here are the pros and cons of borrowing money from relatives and family

PROS

- very accessible
- fast and easiest way to get start up capital
- you don't need to prepare a comprehensive business plan (e.g. you don't have a buy a business plan software or writer)
- no voluminous paperwork required such as banks or SBA loans
- no collateral required
- no credit checking; even if your credit history is poor, you can still get startup capital
- will not care if you put in equity investment or not
- it feels good to know that your family is behind your decision to start a business and supportive of your endeavors
- they are investing in YOU, not necessarily your business idea
- interest, if any, can be lower (sometimes, there's no interest!)
- unlike banks that typically shy away from companies without a proven track record or assets to guarantee the loan, family members can give you loan even if you know nothing about the business
- will give you money even if they think return on investment is not sizeable (venture capitalists will not give money if expected ROI is too miniscule)

CONS

- family will feel that they can make decisions on how your business is run or handled;
- family members will not be silent partners and you will often hear "suggestions" on how to do this and do that
- if things go bad, you won't hear the end of it in family affairs, reunions and such
- relationships can be put at risk, or worse, severed, especially if you lose all the money

RECOMMENDATIONS:

- Explain the risk to them - that by loaning you funds for your startup capital, there is the possibility that the money can be lost.
- Make sure they understand the risk
- Accept the funds only if you know that this is extra money or this money can be earned again by the family member; don't accept it if you know this is the last money of your 80-year old grandma that if you lose this money she will have no money for the rest of her life
- Make borrowing from family members more formal -present to them how the business will be done, your estimates. Do some sort of a less formal business plan
- Draft a loan agreement that specifies an interest rate and payment plan and have your family member sign it before accepting their money
- Keep it to a minimum - if you still want to have a family

Answer 2

This can be tricky. Some relatives if you borrow money wants you to repay as quickly as possible. Other relatives like to help their family in need. So consider the relative you are asking to borrow money from.

Answer 3

Getting involved with family members in financial dealings can cause hard feelings and permanent rifts, if you borrow from family members and can't repay for whatever reason. Family members want to help each other out, but don't appreciate it if they feel they are being taken advantage of. If you do get a loan from a family member, be sure to pay back every dime plus some. Also be willing to help out other family members if they need assistance at a later date. Never assume you can avoid repaying loans to family members just because they are family members.

Answer 4

Never borrow money from relatives because if you can't pay it off quickly you will never hear the end of it!

Answer 5

i'm able to't see it being unsafe. I had a premmie toddler and he grew to become into interior the wellness facility for some weeks so for this reason once I wasn't there to feed him I had to precise milk for him. on the wellness facility they presented breast pumps and had a lactation room for all the mothers to precise milk for his or her infants. The breast pumps that they had there were formerly utilized by potential of different mothers, they sterilized them between each and each use. i'm able to't see the wellness facility doing this if it grew to become into an unsafe prepare.

Answer 6

They think they own you and they use the money they lent you as their trump card when you refuse to do what "they" want.

Don't do it, you will pay and pay over and over again and I am not talking about the $$.

Answer 7

Family will always be family but the bank you only deal with once in awhile.