9781413310788

Business Loans from Family and Friends : How to Ask, Make It Legal and Make It Work

by
  • ISBN13:

    9781413310788

  • ISBN10:

    1413310788

  • Edition: 1st
  • Format: Paperback
  • Copyright: 2009-11-02
  • Publisher: NOLO
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Summary

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.

Author Biography

Asheesh Advani was the founder and CEO of CircleLending, a company that pioneered the business of managing loans between relatives and friends, and of Virgin Money USA, the American arm of a global financial services company that is part of the Virgin Group. Asheesh is a columnist for Entrepreneur magazine and a private equity investor.

Table of Contents

Your Business Loan Companionp. 1
Why Raising Money From Family and Friends Is for You and Yoursp. 7
What's in It for You, the Entrepreneur?p. 8
What's in It for Your Family and Friend Lenders?p. 14
Mixing Money and Relationships Can Workp. 19
Checking Out All Your Financing Optionsp. 23
Your Choices for Small Business Financingp. 25
Minimizing the Amount You Needp. 27
Tapping Into Your Own Resourcesp. 28
Connecting With a Bank or Other Institutional Lenderp. 32
Small Business Administration (SBA) Loan Programsp. 37
How to Check Out Social Lending Networksp. 41
Equity Financing and Angel Investorsp. 41
How Business Advisers and Mentors Can Help With Your Financingp. 44
Basic Legal and Tax Issues of Business Loans From Family and Friendsp. 47
Your Obligations When Accepting a Business Loanp. 48
Tax Implications of Your Choice of Capitalp. 54
How Your Business' Legal Structure Can Affect Your Fundraising Effortsp. 59
Deciding Who to Ask for Moneyp. 69
Brainstorming a List of Prospectsp. 72
Narrowing Your Listp. 74
Creating Your Best Bets Listp. 79
Preparing Your Business Plan and Your Fundraising Requestp. 83
Preparing Your Business Planp. 87
Calculating the Amount of Your Business Loan Requestp. 95
Dividing Up Your Request Among Prospectsp. 98
Putting It All Togetherp. 101
Deciding Interest Rate, Repayment Schedule, and Other Loan Termsp. 103
Will You Offer Collateral?p. 106
How Much Interest Are You Willing to Pay?p. 112
When and How Do You Want to Repay?p. 116
How to Figure Out Your Payment Amountp. 124
What Are Your Options as to Payment Logistics?p. 127
Drafting a Loan Request Letterp. 129
What to Include in a Loan Request Letterp. 130
Using the Sample Loan Request Letter as Your Guidep. 134
What's Next?p. 136
Making the "Kitchen Table Pitch"p. 137
Planning How You'll Approach Your Prospective Lenderp. 138
Making a Compelling Pitchp. 145
Handling Hesitancy and Concernsp. 151
After Your Prospect Says "Yes" (or "Maybe")p. 157
Dealing With Your Propects Who Say "No"p. 163
Negotiating Final Termsp. 165
Preparing a Promissory Note, Security Agreement, and Other Loan Documentsp. 167
Why Documentation is Importantp. 169
Formalizing the Promissory Note: Individual and Sole Proprietor Borrowersp. 198
Signing the Promissory Note: Business Borrowerp. 199
Notarization of Promissory Notep. 200
How to Close the Deal for a Private Loanp. 201
Creating Your Repayment Schedulep. 202
How to Change a Promissory Notep. 208
How to Be Your Own Investor Relations Departmentp. 209
Communicating Your Progress to Lendersp. 210
Repaying Responsiblyp. 213
Keeping Loan Logp. 214
Acting Responsibly When You Can't Make a Paymentp. 216
Changing Your Repayment Schedule and Preparing a New Promissory Notep. 220
If You Have No choice but to Defaultp. 222
Handing Gifts From Family and Friendsp. 225
Dealing with IRS Limits on Gits Amountsp. 227
Why You Need-and How to Get-a Git Letterp. 229
When a Loan Turns Into a Gift: Creating a Loan Repayment Forgiveness Letterp. 230
Appendixes
How to Use the CD-ROMp. 233
Installing the Files Onto Your Computerp. 235
Using the Word Processing Files to Create Documentsp. 236
Using the Print-Only Filep. 238
Files on the CD-ROMp. 239
Small Business Loans Forms and Worksheetsp. 241
Best Bets Listp. 242
Start-Up Costs Worksheetp. 243
Recurring Costs Worksheetp. 244
Collateral Listp. 245
Loan Request Letterp. 246
Promissory Note (for an amortized loan)p. 248
Promissory Note (for a graduated loan)p. 251
Promissory Note (for a seasonal loan)p. 254
Promissory Note (for an interest-only loan)p. 257
Promissory Note Modifications for a Loan to a Businessp. 260
Promissory Note Modifications for Signature by Notary Publicp. 261
Security Agreementp. 262
UCC Financing Statementp. 265
UCC Financing Statement Instructionsp. 266
Loan Logp. 267
Gift Letter: Basicp. 268
Gift Letter: Loan Repayment Forgivenessp. 269
Indexp. 271
Table of Contents provided by Ingram. All Rights Reserved.

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