Tài liệu Business Loans from Family & Friends docx

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L FORM N CD-RO

Family &

Friends

ASHEESH ADVANI

With a foreword by Richard Branson,

Founder and Chairman of the Virgin Group

From

Business

Loans

How to Ask, Make It Legal

& Make It Work

 e Story

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Business Loans

from Family & Friends

How to Ask, Make It

Legal & Make It Work

By Asheesh Advani

First Edition

First Edition october 2009

Editor MARCIA STEWART

Cover Design SUSAN PUTNEY

Book Design Terri Hearsh

CD-ROM Preparation Ellen Bitter

Proofreading susan carlson greene

Index victoria baker

Printing delta printing solutions, inc.

Advani, Asheesh, 1971-

Business loans from family & friends : how to ask, make it legal & make it work /

by Asheesh Advani. -- 1st ed.

p. cm.

Includes index.

ISBN-13: 978-1-4133-1078-8 (pbk.)

ISBN-10: 1-4133-1078-8 (pbk.)

1. Small business--Finance. 2. Business enterprises--Finance. 3. Self-financing. 4.

Commercial loans. I. Title. II. Title: Business loans from family and friends.

HG4027.7.A348 2009

658.15’26--dc22

2009023479

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Acknowledgments

I would like to express my gratitude to Marcia Stewart, my editor at

Nolo, who championed this project and led the process of creating a

second edition of this book. The first edition was managed by Helen

Payne Watt, whose research and writing remains an essential part of

the finished product. The quality of the book is due in large part to the

contributions of Helen, Marcia, and the team at Nolo, especially Ilona

Bray and Stan Jacobsen.

I would also like to thank Richard Branson for supporting this

project and providing the foreword for the book. Richard’s personal

story of building a great brand, launching a compelling set of businesses

around the world, and pioneering the practice of social entrepreneurship

was an inspiration for me long before he acquired my company and

became my boss.

The employees who stood alongside me to build CircleLending and

then Virgin Money over the years deserve a loud shout out. Without

their support and hard work, we would never have been able to foster the

customer evangelists and collect the customer stories which populate this

book.

Finally, I would like to thank my family for their support—and

particularly my wife, Helen.

About the Author

Asheesh Advani was the founder and CEO of CircleLending, a company

that pioneered the business of managing person-to-person loans between

relatives and friends. Subsequently, he was the founder and CEO of

Virgin Money USA, the American arm of a global financial services

company that is part of Richard Branson’s Virgin Group. Asheesh is also

a columnist for Entrepreneur magazine and a private equity investor.

Foreword

When I first started out in the record business, and was struggling to get

by, my Aunt Joyce was kind enough to give me a small loan.

In my case, as maybe in yours, my aunt had heard through the

family grapevine that I needed a loan, and when I came knocking on

her front door, she was prepared with her offer. I was incredibly grateful,

took it very seriously, and paid her back—with generous interest—as

soon as I was able.

That loan kept the Virgin Records recording studio afloat. It gave

me the time and resources I needed to make my business a success. And

many years and many business ventures later, I still have her to thank.

Though my ventures and my lenders are considerably bigger now, I

still witness the critical role that relatives, friends, and associates play in

the founding and growth of young businesses. And it makes so much

sense, really. Friendly lenders tend to be a fast, flexible, and affordable

source of capital—as long as they can trust you are good for the funds.

If you can’t get what you need close to home, and if banks have

slammed their doors on you, get out there and keep searching. Even

in recessionary times, a resourceful entrepreneur will find sources of

capital from within their network or friends’ networks. Be patient. Be

persistent. Be resilient.

I’ll say now, that when it comes to growing a business, I truly believe

there are no rules to follow. What works once may never work again.

You learn to walk by doing and falling over, and it’s because you fall over

that you learn to save yourself from falling over. Raising money to fund

a growing company is the same.

This is the only book I’ve ever seen that rolls up its sleeves to help

entrepreneurs raise business capital from people they know. And I’m

delighted to have a part in it to help you get started. I truly believe that

success is when you have created something you can really be proud of.

So, on with it!

Richard Branson, Founder and Chairman of the Virgin Group

Table of Contents

Your Business Loan Companion......................................................1

1 Why Raising Money From Family and

Friends Is for You and Yours........................................................................ 7

What’s in It for You, the Entrepreneur?................................................................. 8

What’s in It for Your Family and Friend Lenders?..........................................14

Mixing Money and Relationships Can Work....................................................19

2 Checking Out All Your Financing Options.................................23

Your Choices for Small Business Financing .......................................................25

Minimizing the Amount You Need.......................................................................27

Tapping Into Your Own Resources........................................................................28

Connecting With a Bank or Other Institutional Lender............................32

Small Business Administration (SBA) Loan Programs.................................37

How to Check Out Social Lending Networks..................................................41

Equity Financing and Angel Investors..................................................................41

How Business Advisers and Mentors Can Help

With Your Financing................................................................................................. 44

3 Basic Legal and Tax Issues of Business Loans From

Family and Friends...............................................................................................47

Your Obligations When Accepting a Business Loan ................................... 48

Tax Implications of Your Choice of Capital...................................................... 54

How Your Business’ Legal Structure Can Affect

Your Fundraising Efforts..........................................................................................59

4 Deciding Who to Ask for Money..........................................................69

Brainstorming a List of Prospects...........................................................................72

Narrowing Your List.......................................................................................................74

Creating Your Best Bets List.......................................................................................79

5 Preparing Your Business Plan and Your

Fundraising Request...........................................................................................83

Preparing Your Business Plan....................................................................................87

Calculating the Amount of Your Business Loan Request..........................95

Dividing Up Your Request Among Prospects..................................................98

Putting It All Together...............................................................................................101

6 Deciding Interest Rate, Repayment Schedule,

and Other Loan Terms..................................................................................103

Will You Offer Collateral?........................................................................................106

How Much Interest Are You Willing to Pay?..................................................112

When and How Do You Want to Repay?........................................................ 116

How to Figure Out Your Payment Amount.................................................. 124

What Are Your Options as to Payment Logistics?...................................... 127

7 Drafting a Loan Request Letter...........................................................129

What to Include in a Loan Request Letter......................................................130

Using the Sample Loan Request Letter as Your Guide.............................134

What’s Next?...................................................................................................................136

8 Making the “Kitchen Table Pitch”..................................................... 137

Planning How You’ll Approach Your Prospective Lender......................138

Making a Compelling Pitch..................................................................................... 145

Handling Hesitancy and Concerns......................................................................151

After Your Prospect Says “Yes” (or “Maybe”)................................................ 157

Dealing With Your Prospects Who Say “No”................................................163

Negotiating Final Terms............................................................................................165

9 Preparing a Promissory Note, Security

Agreement, and Other Loan Documents................................167

Why Documentation Is Important....................................................................169

Formalizing a Loan With a Promissory Note................................................. 176

Signing the Promissory Note: Individual and Sole

Proprietor Borrowers..............................................................................................198

Signing the Promissory Note: Business Borrower.......................................199

Notarization of Promissory Note ........................................................................200

How to Close the Deal for a Private Loan.......................................................201

Creating Your Repayment Schedule ..................................................................202

How to Change a Promissory Note....................................................................208

10 How to Be Your Own Investor Relations Department...209

Communicating Your Progress to Lenders.....................................................210

Repaying Responsibly................................................................................................. 213

Keeping a Loan Log..................................................................................................... 214

Acting Responsibly When You Can’t Make a Payment........................... 216

Changing Your Repayment Schedule and Preparing

a New Promissory Note ........................................................................................220

If You Have No Choice but to Default..............................................................222

11 Handling Gifts From Family and Friends...................................225

Dealing With IRS Limits on Gift Amounts.....................................................227

Why You Need—and How to Get—a Gift Letter......................................229

When a Loan Turns Into a Gift: Creating a Loan Repayment

Forgiveness Letter....................................................................................................230

Appendixes

A How to Use the CD-ROM..........................................................................233

Installing the Files Onto Your Computer........................................................235

Using the Word Processing Files to Create Documents..........................236

Using the Print-Only File..........................................................................................238

Files on the CD-ROM.................................................................................................239

B Small Business Loans Forms and Worksheets...................... 241

Best Bets List................................................................................................................... 242

Start-Up Costs Worksheet...................................................................................... 243

Recurring Costs Worksheet....................................................................................244

Collateral List.................................................................................................................. 245

Loan Request Letter....................................................................................................246

Promissory Note (for an amortized loan).......................................................248

Promissory Note (for a graduated loan).......................................................... 251

Promissory Note (for a seasonal loan)..............................................................254

Promissory Note (for an interest-only loan)...................................................257

Promissory Note Modifications for a Loan to a Business.......................260

Promissory Note Modifications for Signature by Notary Public ........261

Security Agreement....................................................................................................262

UCC Financing Statement.......................................................................................265

UCC Financing Statement Instructions...........................................................266

Loan Log............................................................................................................................267

Gift Letter: Basic ...........................................................................................................268

Gift Letter: Loan Repayment Forgiveness.......................................................269

Index................................................................................................................................271

Your Business Loan Companion

Some people say that it’s easiest to raise business capital if you don’t

really need it. However, if you’re like most entrepreneurs who are

starting or growing a business, you really do need capital—and

you’re well aware of the challenges of finding it. You can’t very well

buy equipment or materials, hire people, pay for office space, and fund

marketing without some capital.

It’s just as difficult to raise $10,000 as it is to raise $1,000,000 or

more if you don’t have the tools to do it and a workable plan. You could

be a home-based entrepreneur who needs money for marketing. Or you

could be planning to build a software company. You could be raising

money to start a restaurant. Or you could be transitioning from the

corporate world to entrepreneurship and need capital to move from the

idea stage to business formation. In all of these instances, you are likely to

need funding and will need to customize your approach to asking for it.

But if you’ve already looked into bank loans, government loan

programs, and other commercial debt, you may have found that they’re

not designed for start-ups with unpredictable cash flows and will end

up costing you a bundle in interest and fees. And if you’ve approached

venture capital firms, you’ve probably already discovered that the

odds of getting these big leaguers to support a seed-stage company are

worse than the odds of your becoming a professional athlete. During

a recessionary credit market, raising money from institutional sources

like banks and investment firms is particularly competitive, and maxing

out your personal credit cards is not a sustainable option for financing a

business at any time—and especially not during a credit crunch.

So, where do you go to find money that’s available, flexible, and

affordable? The answer is as close as your own backyard. Your relatives,

friends, business associates, and other people you know (even friends of

friends) are among the best sources of small business financing available.

You have several options: You can raise the money you need in the form