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Formalizing Loans From Relatives, Friends

Are you searching for money to start a new business? The first place entrepreneurs commonly look is their own savings or credit cards. The second place is family and friends.

Such private loans and investments from relatives and acquaintances are often an integral part of raising start-up capital, when a business is too small or unproven to qualify for commercial lending.

Entrepreneurs generally provide two-thirds of their own start-up capital. Private loans and investments make up the bulk of the rest, according to the Global Entrepreneurship Monitor, a consortium of universities.

The advantages are lower interest rates than at a bank (or none at all), flexible repayment and a certain amount of forgiveness if your start-up sinks.

But borrowing from relatives, or allowing them to invest in your new business, can put your personal relationships at risk, and the cozy nature of such loans can lead business owners to be lackadaisical about repaying the money.

By MARSHALL LOEB
From Marketwatch

Full Story: http://www.startupjournal.com/financing/family/20060331-loeb.html?sjcontent=mail

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