Money is an asset, when borrowed, that does not belong to you. If it comes from a bank or another person, there is a wise old banker’s saying that rings true. “If you don’t make this work it’s should hurt you more than it hurts me.”
It’s like, you break something that doesn’t belong to you, you replace it. Enter a borrowing relationship with the same attitude, or it could be the relationship that is broken. If the risk is extremely high, find ways to de-risk the idea or consider an equity investment from someone who can afford to lose the money, rather than a loan.
We advise writing loan documents, no matter how simple, and sign them. If you are giving equity in exchange for cash, speak with a financial advisor first to make sure you are protecting your business for the long term.
Friends & Family
Often the first money in is personal. If it is borrowed, our best advice follows…
- If the business risk is high, find ways to de-risk the idea (through research grants or customer discovery) prior to asking friends and family for money.
- Money, when borrowed, is like asset that does not belong to you. The equivalent to “if you break it, you bought it” in borrowing money is an old banker’s adage. “If this goes wrong, it will hurt you more than it hurts me.” Speaking with experienced business professionals prior to borrowing helps to avoid money wasted due to unknowns.
- To save valuable friend and family relationships we advise executing loan documents, no matter how simple. If you are giving equity in exchange for cash, speak with an advisor first to make sure you are protecting your business for the long term.