03: Selecting Lenders
Who To Approach
It’s time to generate a list of all your relatives, friends and acquaintances, no matter how distant. Consider everyone you can think of, as investments often come from unexpected sources. Your ideal friends and family investor has enough income where they can afford to lose their investment. They know you well and trust your leadership capabilities, and their loan to you does not add any tension to your relationship. But lenders this ideal are scarce, so it is important to weigh which of these ideal characteristics is most important to you.
- Lender has experience running their own business: This is probably the least important characteristic in a lender, but a beneficial one nonetheless. These lenders can provide advice in a way that is productive and useful because they have been there themselves.
- Lender has enough of an income to lose the investment: This characteristic is typically the most heavily weighted, and will help you begin eliminating contacts from your potential lender list. You may have lots of people who want to help and would be willing to lend to you, but you do not want to put anyone in a position where they risk falling into financial trouble as a result of you being unable to repay them.
- Lender knows your work ethic and trusts your judgment: This is crucial to find in a lender because it has a direct effect on how comfortable the person will feel when the money is out of his or her hands. This concern can be addressed by making the loan formal with a promissory note and repayment schedule. It will assure the lender that they will recoup their money no matter what. But even with the paperwork protecting their money, a lender who is nervous about your money management is likely to pester you by questioning your decisions and commenting on your expenditures. You already have enough to worry about in this early stage of your business, and keeping an anxious lender off your back is a task you should not add to your responsibilities.
- Lender’s money will not cause friction in the relationship: Even if the lender trusts you and their money is protected with a legal agreement, if the lender’s spouse or siblings don’t get along with you, the lender is putting themselves in a tough situation. Avoid lenders who are closely associated with someone who has a high potential to cause drama and stress in your relationships.
You know your options best. Use these characteristics as a guideline to narrow down your list of prospective lenders to a list of ideal lenders. By pre-screening your options using these criteria, you avoid adding additional stress to your capital search.