Getting capital from friends and family

I run my business from my mother's house. I think you should use whatever support you can to get your business off the ground. Of course, you need to respect the relationship even when you are partnered with family. Don't let your business cause problems in those important relationships.

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Friends and family are often the first sources of funding you go to, especially when you are starting out. You can choose either to pay them back (hopefully with interest) or give them equity in your business. To help you decide, ask yourself if the person can provide guidance or assist your business beyond funding. If so, giving them equity may be the right call. If you do not want the person directly involved in your business, then it’s advisable to opt for a loan. Just make sure you’re confident you will be able to repay them.

The risks?

If you run into difficulties with your business, this could impact your personal relationships and you will feel responsible if your friends or family members lose money. This concern may make you more risk averse than you should be. Although this may seem the easiest route it can end up getting complicated. It is important to have a contract in place so that everyone’s expectations are clear.

A graphic illustrating friends and family funding.

The best investor of all

All of the above options are no match to investing into your business with your own money. You are free to do as you please, and it can be motivating to have to make the most of your own money.

If you can, plan ahead of the time when you want to start a business. Using your salary to invest in things like unit trusts, tax-free investments and other investment products can give you a nest egg that will allow you to start your business in a comfortable position.

It takes money to make money, but ingenuity and smart thinking about where you can get funding will get you far. Look at each of the options presented in this module and think of three ways you could exploit all of them. List the banks you might approach and their requirements, the investors you might want to partner with and the people in your personal network who might be keen on investing into your business. Keep them at hand for when your business will need that extra cash injection.

In the next module we look at the nuts and bolts of setting up your business. How do you register? What do you need legally? How do you write contracts?

All the best in find funds for your business!

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