Imagine that you have just opened your own business and urgently need money to make your dream come true. Also imagine a lender that believes in your business and offers you flexible terms and no interest.
In this article, you will learn about the advantages and disadvantages and efficient ways to borrow money from your family for your business, and discover other alternatives that may be more suitable for you.
Borrow Money From Your Family
This type of alternative loan can work for many entrepreneurs, especially in their initial stages, but you should keep in mind the following: the informality that comes with your family lending you money can become an unpleasant situation. Vague terms and an unstructured loan can lead to confusion and drama.
And what’s worse, borrowing money from your loved ones could put your own finances in jeopardy. Advantages and disadvantages of borrowing money from your family
Before you decide to borrow money from your family, make sure you weigh all the pros and cons.
What Are The Advantages Of Borrow Money From Relatives:
Getting a loan from your family or friends usually means you won’t pay interest. In most cases, your family or friends will not ask for a fee or percentage on the money they lend you. This is one of the best advantages of this form of loan.
If it is difficult for you to make your payments on time, your loved ones will be more understanding than a financial institution. You can agree on more flexible payment terms with your family and friends.
No Endorsement Needed:
If you don’t repay the loan, your family probably won’t claim your possessions or your home; In other words, you will not have to provide collateral or collateral when you borrow the money.
Borrowing money from your parents or a friend requires less paperwork than at a traditional bank. That said, your word is not good enough either. It is highly recommended to write and formalize a loan agreement, as we will see later.
Saves Your Time:
Unlike most financial institutions that will ask you to fill out forms and sign documents, and where you will have to wait days before knowing if you have been approved, with a family loan you will receive an affirmative or negative answer immediately.
No Credit History Required:
Your family will obviously ask for your credit history to grant you the loan, and your credit will not be affected regardless of what happens. As you know, most lenders, before providing you with a loan, must determine if you will be able to repay it according to the agreed terms.
For that they use your history or your credit score. This will tell them if they can afford to give you a loan. However, your credit history or score does not come into play when it comes to borrowing from family or friends.
It Is A Good Option For Start-Ups:
If you’re just starting out with your small business, you’ll have a hard time getting approved for a loan at most financial institutions, which typically require at least two years of operations. Going to your family and friends may be the best option in your case, and perhaps even the only one.
Disadvantages Of Borrow Money From Relatives:
Borrowing money from your family to invest in your business usually involves a limited loan amount. If your business is showing promising signs of growth and expansion, you will likely need a large amount of capital to purchase new equipment, hire additional staff, or invest in marketing and advertising. Your parents or friends are unlikely to be able to lend you such large amounts.
Not Friendly To Build Credit History:
If you plan to grow your business in the long term, it is crucial that you build a solid credit history . But this is impossible with a family loan.
You Could Have To Cede Part Of The Management Of Your Company:
If you borrow money from a family member, they may ask you for a stake in your business in return. Whether you’re comfortable with it or not, it’s a possibility you should embrace, especially if your family member also has an entrepreneurial mindset.
It Can End Up Being An Awkward Situation:
Borrowing money from your parents for your business isn’t as easy as asking them to take you out to dinner. You may be embarrassed to do so and it may hurt your pride.
They May Feel Entitled To Give You Their Opinion:
Your family or friends may feel that since they are putting their own money into your business, they have a right to give you feedback on how you run your finances or your business.
It Could Endanger Your Family’s Finances:
Borrowing money from your family for your business could hurt their own finances. Your parents have probably been saving for their retirement. Keep in mind that they are taking a great risk by giving you a loan.
May Have Tax Implications:
You must pay taxes on any amount over $14,000 that is given as a gift . Be sure to consult a tax expert or accountant if your family loan could have any tax implications.
Does Not Provide You With Tools And Resources:
Your family likely has no business background and cannot offer you experience in your industry or other resources in business management or finance. According to surveys, there are so many drawbacks of borrowing from Friends and Family.
Change The Terms Of The Relationship:
The person who has loaned you money is not just a family member. This is the person to whom you owe money. They could be accommodating and flexible and will never let you believe they owe you something. It is possible that you are not bound by the return promise either. In that scenario, little can change. However, the majority often there is a chance that one or both may observe a change in the relationship. In the worst-case scenario you may find that the person who lent you money will make comments about your lifestyle and make comments such as ” You went to a romantic getaway? ” that you will interpret as ” You’re planning to travel with the money I lent you “. In reality, an entirely new power structure has been established, but it is not always healthy.
Can Destroy A Friendship:
The situation could get worse quickly. It could happen if the person becomes involved in your life as in the above example. You may not be likely to be able to refund the money in the manner you originally planned. When it comes to family, things are different. Even if there is a problem and you do not talk to one another for a time but over time, it’s likely that the issue will become more regular. There is always a blood connection. When you have friends, the chance of ending the relationship permanently is much greater.
It Can Affect The Relationship:
In case you have a partner, and you have asked a relative for money, there may be tensions. If the one who lent the money is your family, your partner may feel uncomfortable with them and pressure you to return the money as soon as possible. On the contrary, if the one who advanced the money is her family, then you may be the one who feels that discomfort. If you have a partner, you know how relationships with family and in-laws can be a source of conflict, and a money issue can complicate them even more.
Is There A Better Alternative?
Of course! You have an Easy Payday Loan. These are alternative lenders with vast experience in business loans. Their specially designed small business loans combine the flexible terms a family loan can have with the benefits and features a family loan can’t:
- No credit history needed.
- There are no prepayment penalties: you can repay the loan in full at any time.
- Quick and easy process: Camino Financial requires less documentation than most lenders, and you can receive your funds within 4-10 days.
- It is a good option for new businesses: your business only needs to be running for 9 months to apply for one of Camino Financial’s loans.
- Larger amounts of capital: You can access larger amounts of funds than your family is likely to lend you. Our business loans range from $5,000 to $400,000 to fit any of your business needs.
- Possibility of obtaining a better loan in a short time: after only 9 months of making punctual payments, you can request a second loan for a larger amount and at a lower interest rate.
- Exceptional customer service: You will receive advice from a business loan specialist throughout the process.
- Continuing Education: Our services go beyond lending capital. We provide an educational experience that helps entrepreneurs improve their finances and grow their business. You’ll have access to exclusive tools, resources, and webinars.
Find out today if a business loan from Easy Payday Loan is a better option than asking your family for money. All you have to do is fill out this online application to request a quote. You will instantly know if you have been pre-approved, and this will not affect your credit. Shortly after you submit your application, a business loan specialist will contact you to guide you through the rest of the process.
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