To give a kick-start to your business, you need funding assistance. Getting a business loan is a tough task in today’s competitive world. Besides, loan processing requires a good amount of time and you may have to undergo through a lengthy paperwork process too. For budding entrepreneurs, it is relatively easy to obtain business funding from their close friends or family members. However, you should not step forward with a casual approach while borrowing a business loan from your relatives or friends. You should go through the loan borrowing process in a professional manner.
Here are 4 tips that you can follow while procuring a loan from your friends or family members.
Draft a Foolproof Business Plan
A business plan helps your lender clearly understand your ambitions and whether your business is going to be a successful one or not. With banks and other lending institutions, you have to submit a business plan beforehand. It is a crucial part of the loan borrowing process. With relatives and friends also, you should consider submitting a business plan so that they have a fair idea of your business goals and strategies. It will also help them know how you are going to use the loan and how you are going to make profit. It gives them an assurance that they are going to invest in a right project.
Borrow Only the Required Amount of Money
You should not hesitate to ask for a huge amount of money from your parents or friends. Remember if you go for a lesser amount, it will not suffice your funding requirements. You may not even start your venture if the amount is less than the required amount. Do not forget that in any business you will require money not for just starting the business only, but also to run the business and for dealing with various expenses like electricity bill, room rent etc. On the other hand, you should also not take them for granted and borrow excessive money unnecessarily.
Determine Your Repayment Plan
At the time of borrowing money, you should also decide precisely as to how you are going to repay the money. Consider making a plan that is feasible for you as well as for your investors. You can plan to repay the borrowed amount on a quarterly or half-yearly basis. You should also have alternative options for repaying the loan in case your business does not perform well. For that matter, you can prefer to have a legal document too. Make sure that the interest rate, loan repayment tenor and other terms and conditions are clearly mentioned in the document.