Family and friends

Did you know that most businesses are either funded by the owner’s savings or by the savings (or in kind contributions) of family and friends? If you are battling to raise finance, then a good alternative is to get your family and friends on board. They know you as a person and if you can convince them that your business idea is great, they are likely to help you.

Have you asked your family or friends yet? If you haven’t try this:

  • Make a list of people you could approach to help with getting your business off the ground. Start with close family that you know well and then move on to include more distant family and friends.
  • Next to each name write down an amount you think they would be prepared to loan or, if you are lucky, donate!
  • If anyone has things that you could use in your business, then make a list of these next to the relevant name. You can then ask them to lend these items to you rather than give you money.
The idea is to see whether you can reach your target if everyone contributes just a little. It is a good idea to formalise how you work with family and friends; this means creating a formal loan agreement that clearly states how the money will be used and the expected returns and deadlines.  Don't forget that you will be expected to regularly update people on your progress against these plans.

Your money

Keep in mind that if you are going to ask friends and family to help finance your business, they will expect you to know how much of your own money you are willing to invest! You can do this by using your savings or your personal credit facilities.

Every little bit helps

Have you heard of Crowd Sourcing? It’s a business concept which creates space for many individuals to contribute to a particular project. Why not extend the concept and consider borrowing money or equipment from a number of sources. For example, your dad might lend you R50 000 in start-up cash. Your best friend might take out a small loan to buy that industrial freezer your restaurant needs, and you could take out a micro-loan to pay for your marketing materials.
The basic idea is to raise start-up finance from different sources. Here are some examples: 
  • Borrow equipment from family and friends.
  • A micro-loan can pay for marketing material.
  • Suppliers looking for new business might be willing to sell you raw material on credit.
  • Working capital could come from a second mortgage.
  • You could barter your own professional services for the services of providers you might need - like a lawyer or graphic designer.

Next steps: