All economic indicators show that entrepreneurs borrowing money are much more successful when they know their lenders personally and have their full support. So why do loans from friends and family carry a poor reputation when it comes to financing a small business?
Traditional Friends and Family Lending Lacks Clarity And Structure
The most popular argument you’ll hear against friend and family loans for your business is the risk of possibly ruining your relationship. Let’s look at how this can happen:
- Terms are loose or nonexistent. Repayment dates were not established upfront, and if there was an interest rate, it might have been unclear. Do they get access to the books?
- There is no legal structure. Maybe the conversation took place over the dinner table or email, and no official loan documents came together to cement the “handshake.”
- Roles and risk were not discussed. All of the sudden your savvy friend now thinks he manages the business, or your Mom did not realize she might not get paid back
- There is no loan ceiling. Often business owners find that they need more money than they originally thought, and asking again can cause friction
At Able, we took these common pitfalls and created a friend and family loan platform that is financially and legally sound. Three to five friends and family members, who we call Backers, fund at least 10% of your loan. Then, we fund the rest.
Each person signs a legally binding loan agreement with you, and a legally binding loan agreement with Able. Repayment terms are clear, and Able services the loan on your behalf, so you don’t have to turn your family members into debt collectors. As a bonus, you build your credit history and become more bankable as you pay back the loan.
Able is a New Platform for Collaborative Friends and Family Lending
The majority of the small businesses we work with have already accepted funding from friends and family, and are hesitant to make the ask again. Here’s how Able is different:
- Able is a debt investment. Friends and family Backers earn interest payments over the life of the loan.
- Able manages the loan and repayment. Able collects payments from borrowers each month, and automatically deposits interest payments to Backers throughout the life of the loan. Backers receive their principal back at the end of the loan’s term.
- Able matches Backer funds. Friend and family participation in the loan unlocks three times more capital from Able.
When the time came to recruit Backers, it was easy for me to think of my biggest supporters – friends and family who believe in me. And, it helped provide peace of mind to me and my Backers that Able provided structured loan documents and transparent terms. - Jade Williams, Austin Pet Stylist