Business Loans from Family and Friends: How to Ask, Make it Legal, & Make it Work (Business Loans from Family & Friends: How to Ask, Make It Legal & Make It Work)

Skipping the bank is an option: learn how to ask for money from trusted family and friends, keep it legal, and keep everybody happy. About 65% of domestic banks report that they have tightened their lending standards for commercial and industrial loans to small firms (CNN, September 18, 2008).Many entrepreneurs at the early and often untested stages of launching or expanding a small business are having difficulty qualifying for traditional bank loans or venture capital in the down economy, particularly those with poor credit ratings. Business Loans From Family & Friends opens a window on an area of lending that accounts for more than 50% of all startup business investment dollars, and, additionally, is a great resource for those who have identified their lending friends or family, but want to know how to structure the deal so that everyone understands it and no one gets hurt. Your Business Loan Companion......Page 15 1. Why Raising Money From Family and Friends Is for You and Yours......Page 21 What’s in It for You, the Entrepreneur?......Page 22 What’s in It for Your Family and Friend Lenders?......Page 28 Mixing Money and Relationships Can Work......Page 33 2. Checking Out All Your Financing Options......Page 37 Your Choices for Small Business Financing......Page 39 Minimizing the Amount You Need......Page 41 Tapping Into Your Own Resources......Page 42 Connecting With a Bank or Other Institutional Lender......Page 46 Small Business Administration (SBA) Loan Programs......Page 51 Equity Financing and Angel Investors......Page 55 How Business Advisers and Mentors Can Help With Your Financing......Page 58 3. Basic Legal and Tax Issues of Business Loans From Family and Friends......Page 61 Your Obligations When Accepting a Business Loan......Page 62 Tax Implications of Your Choice of Capital......Page 68 How Your Business’ Legal Structure Can Affect Your Fundraising Efforts......Page 73 4. Deciding Who to Ask for Money......Page 83 Brainstorming a List of Prospects......Page 86 Narrowing Your List......Page 88 Creating Your Best Bets List......Page 93 5. Preparing Your Business Plan and Your Fundraising Request......Page 97 Preparing Your Business Plan......Page 101 Calculating the Amount of Your Business Loan Request......Page 109 Dividing Up Your Request Among Prospects......Page 112 Putting It All Together......Page 115 6. Deciding Interest Rate, Repayment Schedule, and Other Loan Terms......Page 117 Will You Offer Collateral?......Page 120 How Much Interest Are You Willing to Pay?......Page 126 When and How Do You Want to Repay?......Page 130 How to Figure Out Your Payment Amount......Page 138 What Are Your Options as to Payment Logistics?......Page 141 7. Drafting a Loan Request Letter......Page 143 What to Include in a Loan Request Letter......Page 144 Using the Sample Loan Request Letter as Your Guide......Page 148 What’s Next?......Page 150 8. Making the “Kitchen Table Pitch”......Page 151 Planning How You’ll Approach Your Prospective Lender......Page 152 Making a Compelling Pitch......Page 159 Handling Hesitancy and Concerns......Page 165 After Your Prospect Says “Yes” (or “Maybe”)......Page 171 Dealing With Your Prospects Who Say “No”......Page 177 Negotiating Final Terms......Page 179 9. Preparing a Promissory Note, Security Agreement, and Other Loan Documents......Page 181 Why Documentation Is Important......Page 183 Formalizing a Loan With a Promissory Note......Page 190 Signing the Promissory Note: Individual and Sole Proprietor Borrowers......Page 212 Signing the Promissory Note: Business Borrower......Page 213 Notarization of Promissory Note......Page 214 How to Close the Deal for a Private Loan......Page 215 Creating Your Repayment Schedule......Page 216 How to Change a Promissory Note......Page 222 10. How to Be Your Own Investor Relations Department......Page 223 Communicating Your Progress to Lenders......Page 224 Repaying Responsibly......Page 227 Keeping a Loan Log......Page 228 Acting Responsibly When You Can’t Make a Payment......Page 230 Changing Your Repayment Schedule and Preparing a New Promissory Note......Page 234 If You Have No Choice but to Default......Page 236 11. Handling Gifts From Family and Friends......Page 239 Dealing With IRS Limits on Gift Amounts......Page 241 Why You Need—And How to Get—A Gift Letter......Page 243 When a Loan Turns Into a Gift: Creating a Loan Repayment Forgiveness Letter......Page 244 Appendix A. How to Use the CD-ROM......Page 247 Installing the Files Onto Your Computer......Page 249 Using the Word Processing Files to Create Documents......Page 250 Using the Print-Only File......Page 252 Forms From the CD-ROM......Page 253 Appendix B. Small Business Loans Forms and Worksheets......Page 255 Best Bets List......Page 256 Start-Up Costs Worksheet......Page 257 Recurring Costs Worksheet......Page 258 Collateral List......Page 259 Loan Request Letter......Page 260 Promissory Note (for an amortized loan)......Page 262 Promissory Note (for a graduated loan)......Page 265 Promissory Note (for a seasonal loan)......Page 268 Promissory Note (for an interest-only loan)......Page 271 Promissory Note Modifications for a Loan to a Business......Page 274 Promissory Note Modifications for Signature by Notary Public......Page 275 Security Agreement......Page 276 UCC Financing Statement......Page 279 Loan Log......Page 281 Gift Letter: Basic......Page 282 Gift Letter: Loan Repayment Forgiveness......Page 283 A......Page 285 C......Page 286 E......Page 288 F......Page 289 I......Page 290 L......Page 291 M......Page 293 P......Page 294 R......Page 297 S......Page 298 U......Page 300 W......Page 301 Web Resources......Page 0 Related Products......Page 308 Ask for a loan from trusted family and friends, keep everything legal and start your business without the bank! Launching a small business isn't easy even in the best of times, and with the credit crunch, getting to opening day can seem near-impossible. And if you've got no collateral or poor credit, qualifying for a traditional bank loan will be an uphill battle at best. But you don't have to go straight to a traditional lender to find the investment cash you need. WithBusiness Loans from Family & Friends, you'll get the inside details on how you can take advantage of an area of lending that accounts for more than 50% of all business start-up investment money. And, if you've already identified a potential investor, this resource will help you structure the deal so that everyone understands the details and no one gets hurt, all while staying within the law. Business Loans from Family & Friendsshows you how to approach potential lenders and present a professional loan request, and will help guide you toward an agreement that will protect both sides. You'll get complete instructions for drawing up the paperwork to formalize your loan agreement, loan proposal letter letter of intent personal financial statement promissory note Written by Asheesh Advani, founder of CircleLending (now Virgin Money) and a pioneer in the business of managing person-to-person loans,Business Loans from Family & Friendsoffers you a smart way to keep family money within the family.

Skipping the bank is an option: learn how to ask for money from trusted family and friends, keep it legal, and keep everybody happy

About 65% of domestic banks report that they have tightened their lending standards for commercial and industrial loans to small firms (CNN, September 18, 2008).

Many entrepreneurs at the early and often untested stages of launching or expanding a small business are having difficulty qualifying for traditional bank loans or venture capital in the down economy, particularly those with poor credit ratings. Business Loans From Family & Friends opens a window on an area of lending that accounts for more than 50% of all start-up business investment dollars, and, additionally, is a great resource for those who have identified their lending friends or family, but want to know how to structure the deal so that everyone understands it and no one gets hurt.

The Wall Street Journal

"This is an excellent resource to find the information, documents and calculators you need to put a deal together..."

Why raising money from relatives and friends is for you And yours Readying your business before making your pitch Handling gifts and loans from family and friends Deciding who to ask for money Preparing your business and fundraising plans Deciding your interest rate and other loan terms Drafting your loan request letter Making the "kitchen table pitch" Preparing a promissory note, gift letter, and other Important documents Keeping good relationships with your lenders. "This unique book gives you all the information and legal forms you need to raise business capital through loans and gifts. You'll understand key legal and tax issues, including how your business's legal structure affects fundraising ..."--Page 4 of cover