Here are three tips about borrowing from friends and family for your business, as explained in the book Finance Your Business: Secure Funding to Start, Run, and Grow Your Business by the staff of Entrepreneur.
It’s important to treat friends and relatives as if they were any other investor. Insist on the same sort of legal documentation you’d prepare if they were a total stranger, as too many entrepreneurs make such loans on an informal basis.Next, secure a lawyer. Many states guarantee voting rights to an individual who has invested money in a business, which can create hard feelings. Make sure to check with your attorney before accepting any loans from friends or family.Finally, remember that debt may actually be better than equity. If someone lends you money, you only have to pay it back, with interest — they can’t tell you how to run your company. If someone buys stock in your business, however, they are legally your business partner. When in doubt, make it a loan, and pay it back as soon as you can.