Family - Friends - fools: what is it?
Very generally, entrepreneurs who are launching a project, or who are a little further down the line (start ups), are always looking for financial support to help them bring their business to life. This is the most difficult time for an entrepreneur to find funding, when their project is often in its earliest stages.
It's often easier to raise funds emotionally than rationally and in terms of ROI (Return on Investment). That's why it's more natural to turn to Family, Friends and ‘Fools’, which we'll happily translate here as ‘Benefactors’. It's not uncommon to see wealthy individuals who don't hesitate to give a helping hand to a young entrepreneur.
Advantages
The terms of these ‘emotional’ loans are obviously often very advantageous. They offer very good rates, very flexible repayment terms, no personal guarantees and often very creative repayment terms. For example, a restaurant owner might repay in meals, an IT department in services, a florist in flowers... There are no rules in this area, but some will require an IOU or acknowledgement of debt. You will therefore need to determine the rules for repayment. The funds you obtain can then be used as leverage to obtain a bank loan.
Disadvantages
While there are great advantages to FFF financing, there are also dangers. Money matters between members of the same family and between friends can lead to major disappointments and even disputes. This is why it is absolutely essential, even if the money is lent ‘with love’, that the conditions under which the sums are made available are clearly listed.
Advice
Quite logically, it is possible that some of your lenders will want to see how your business develops. What could be more natural? So, if you have the opportunity to make choices, opt for lenders who will bring real added value to your business. Choose someone with marketing expertise rather than someone who has no ‘useful’ experience in developing your business.
When approaching family members, friends and potential benefactors, prepare your project, write it down and think about it as if you were going to present it to a banker or a perplexed investor. Remember, you're going to be asking for ‘emotional’ money, so it's important that the people you're going to talk to think that you respect them just as much as a banker.
In this regard, don't forget to inform your contacts of your company's risks and, consequently, of the risks they are taking too. This will earn their respect and certainly their trust. After that, keep them regularly informed, as you may still need them.