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When friends and family become financiers

Raising money from family and friends to fund a business can be a complex situation to navigate, requiring both personal trust and a professional approach.

When he started looking for money to help launch his payroll services business in 2004, Jason Maxwell turned to some familiar faces: friends and family, including his stepfather.

“It was a humbling experience,” recalls Maxwell, whose company, MassPay Payroll Services, is located in Beverly, Massachusetts. “So even with my stepfather’s loan, I insisted that he be paid interest on the amount he lent me. I also set up an amortization schedule that showed how much principal and interest he’d be paid each month over the three-year life of the loan. From the start, I treated it more like a business transaction than a personal favor, and I know he appreciated that approach.”

Borrowing from friends and family is a classic financing tactic for entrepreneurs, but it’s also one that’s fraught with peril. If things go wrong, you can lose not only your shirt, but also your relationships with the people who are most important to you. Here are six tips for getting it right:

…to read this article in full, visit leading US entrepreneurial resource entrepreneur.com

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