“Should I Borrow From My Family To Launch My Business?”
I have a business idea that requires seed funding. With savings and the equity in my home, I’m around $80k short. A few family members have offered me money but I have been told that’s a bad idea. What is my best option?
Mariam, Melbourne
It’s tricky to mix family and money informally. You have to consider the fall-out if the business doesn’t work. Various factors – a pandemic, for example – can derail business plans, and a family member who has given you money could lose the lot.
If you go ahead and borrow money from your family, be sure to set it up as you would any other loan, with agreed interest repayments and everything set out in writing.
Before asking for, or accepting funds from, family members, I suggest you consider these other strategies.
Scale it down
Delay the launch of your business until you have saved more money, or get going with the savings you have until you have proven the concept.
Try a bank loan
As a start-up, you probably don’t have a track record of running a business profitably, or a history of making repayments. To improve your chances of getting a loan, you will need three things: a business plan, detailed financial information and a clear rationale for your “ask”. You may need to provide security – many people use their home. If you take an unsecured loan, expect to pay higher interest than you would on a secured loan.
Seek grants
All levels government offer business grants. Local government offers grants to businesses that promote community or tourism and some even hold sessions on how to apply for such grants. Visit your local government website for more information. There is also state and federal government assistance for businesses, as well as a number of avenues for female business founders. Good places to start are business.gov.au and businessaustralia.com
Seek early-stage investors
I’d put this option last on your list. The downside is that when investors come onboard, you give away equity in your business.
By Kate McCallum, financial adviser and author of The Joy of Money; multiforte.com.au
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