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Before you approach a friend or relative for funds to 91香蕉黄色视频 your business, be clear about what your requirements are.

Loan

If your business needs immediate and relatively short-term funds, a loan may be most appropriate. Decide whether you can afford to pay interest, or whether you are seeking an interest-free loan. If you do pay interest there will be tax implications for both you and the lender.

Investment

If the business needs longer term or permanent funding, you may want to consider giving your investor a share in the business.

If you choose this option, think about whether you need an active partner or shareholder. If you are just looking for a passive partner who will have no involvement in the business, make this clear. As a rule of thumb, retaining at least 70% of the shares issued should ensure you keep control.

Explain to your investors that the money they invest is risk capital - they may not get it back. However, if your business goes well, they might look for returns that reflect the risk, ie greater than they would receive if they placed their money in a bank. 

Manage expectations

Remember that whether they make a loan to your business or take a share in it, the investor should not lend or invest more than they can afford to lose.

Ask the friend or relative to set out their expectations clearly and plan how you will manage those expectations. This can help create a win-win situation for you and for your investor.

For advice on approaching a friend or relative for funds talk to your .

For more specific financial advice on your particular situation, talk to your accountant.

There are definite advantages to obtaining finance from family or friends, but you should also be aware of potential problems.

Advantages of raising finance from friends or family

There are clear advantages to approaching family or friends, rather than conventional sources of funding, for a loan or investment.

Family or friends:

• will be flexible - on a practical level, they may offer loans without security or accept less security than banks
• may lend funds interest-free or at a low rate
• may agree to a longer repayment period or lower return on their investment than formal lenders
• may also seek a lower rate of initial return than commercial backers
• already know your character and circumstances and so are less likely to need a detailed business plan

Disadvantages of raising finance from friends or family

However, there are also some disadvantages to family or friends financing your business:

• transactions of this nature can be complex - any misunderstandings about the arrangement can damage relationships
• there is a risk your investors may offer more than they can afford to lose, or that they will demand their money back when it suits them but not your business
• they may also want to get more involved in the business, which may not be appropriate

Tips on approaching friends or family for finance

It's a good idea to approach friends and family in the same way you would a formal lender:

• be crystal clear about your own expectations - specify how long you need the money for
• detail the repayment level you can afford
• spell out how many shares or what profit the investor will receive - and when any returns will be paid
• clarify whether an investor will have any financial liabilities for your business activity
• draw up a formal written agreement
• think twice about approaching a friend or family member if other sources of finance have turned you down - analyse the reasons for this and review your business proposition
• remember that if your business fails, lenders and investors may lose their money
• pass on the reasons that others gave for turning you down

If you decide to accept a loan or investment from friends or family you should approach it as if it were a formal finance deal.

This will involve:

• presenting your business plan
• preparing a business case
• taking professional advice
• creating a formal, written agreement

Before approaching a friend or family member you should create or revise your business plan so that you can demonstrate your plans for the business and their investment in it. Make your proposal with the same considerations as you would for any formal lender or investor. The friend or relative will need to know how their money will be used and the bigger picture for your business. Make them aware of all risks and worst-case scenarios.

You need to make a business case that will persuade them to finance your business instead of their own personal plans.

Sources of help

It is sensible for both parties to get professional advice if the amounts involved are substantial. This will help you both consider factors objectively, without feeling under pressure and to reach a decision that you feel comfortable with.

For professional advice you can search the .  Many accountants will also advise on the issues and will draw up an agreement - see choose an accountant for your business.

If both parties agree to proceed, formalise the arrangement with a written agreement. This will help prevent future misunderstandings and provide a solid basis for the business relationship. A loan agreement should cover the loan size and terms, the repayment plan and interest rates.

Investment agreements are more complex and should include the amount invested, the allocation of profits and shares, roles and responsibilities of both parties and a repayment schedule. You should seek professional advice to help you draft any written agreements.

If you decide to finance your business from a friend or family member's investment, you can prevent misunderstandings by having a formal agreement in place. The agreement should be witnessed by an independent person.

Key elements to include in a written agreement are:

• the nature and timing of return on the investment - such as how much a loan is for and whether an investor is to receive profits or a share in the business
• a repayment schedule or timed plan of dividend payments - include dates, amounts and interest on loans if applicable
• respective responsibilities - for an investor this should state whether they are to have a role in the business or any liabilities
• how any problems will be resolved

This will ensure both parties are clear about the terms on which the money will be transferred.

You should both consider getting legal advice if the loan amounts involved are substantial for either of you. For professional advice you can search the .

For loans, you can reduce the cost of legal advice by preparing a draft agreement to discuss with your legal adviser. Some websites will prepare a draft promissory note - a legal document that is less formal than a full loan agreement, but which still sets out all the relevant details clearly.

For more complex investment agreements, both parties should decide the role and responsibilities of the investor and what their rewards - such as shares or dividends - will be prior to asking a professional to draft a full agreement. For more information read company shares and shareholders.

Some loans are interest-bearing while some are interest-free.

Interest-bearing loans - even those with low rates - have tax implications for you and the lender:

• you may deduct loan interest on business loans from your taxable profit
• the lender must declare interest received as taxable income

However, if the loan is interest-free, there are no tax implications for either borrower or lender.

It is good practice to set out the loan's interest and repayment terms in a written agreement. Both sides should keep records of all repayments.

If you have sold shares in your business to a friend or a family member and you make dividend payments to them, keep full records. You may not deduct such payments from your business' taxable profits, but the recipient must declare them as taxable income in the year they receive the money. See company shares and shareholders.

for advice on the tax implications of financing from friends and relatives.