How to Borrow Money From People You Know

While it's not really a good idea to mix business with family and friends, sometimes a person has no other option. If this is the case, there are ways to minimize the friction and increase the chances of a positive outcome when someone borrows money from people he knows.

Instructions

1. Create a thorough business plan that details what you are going to do with the money. The plan is more of a big picture aspect of the loan, which will show how you will benefit from the loan. The business plan will also show any projected revenue from the loan.

2. Detail how the lenders will benefit from the money they allow you to borrow. Show a repayment plan with the interest rates of the repayment. If you can't afford to repay the loan, show what the person you know will receive in return for the money. This can be a partnership in the venture or simply your undying gratitude. Whatever it is, you must show this person benefits from lending you money.

3. Formulate a budget that explains why you need to borrow the money and what you are spending it on. This budget is an extension of the business plan, but it will show the lender in detail what your financial position is and what you are going to do with his money. If necessary, provide financial statements from your bank to illustrate further just how badly you need to borrow the money.

4. Ask the people you know least first. You should start by asking the people with which you have the least amount of personal history. That way, you have the least amount of personal feeling involved in the business deal. Then if they refuse, work your way down the list, which you will rank by closeness of the relationship.

5. Borrow only as much as you need and do not inflate the need. Sometimes when people borrow money, there is a tendency to want some sort of financial cushion in the amount you borrow. This is a mistake, because the more you borrow the greater the chances you will not pay the entire amount back to the lender.

6. Stay away from people with whom you have a negative personal history. You may think they and you can get beyond the personal history, but this is usually not the case. Chances are this person will use this loan for personal payback, and nothing good can come from that.