Startups still rely heavily on funding from family and friends. A little more than one-third of the estimate six million small businesses started annually in the U.S. begin with funding from friends and family.
The fact is, many entrepreneurs have got their start this way leading to the founding of many well-known brands. With an $800 dollar loan from his family Berry Gordy Jr. started Motown Records. Walmart founder Sam Walton borrowed much more—$20,000—from his father-in-law to open his first store. John Mackey and Renee Lawson launched the popular Whole Foods store and brand with a $45,000 loan from family and friends back in 1978.
Now, a Sunnyvale, California startup called TrustLeaf is attempting to simplify the method by which entrepreneurs can approach family and friends for loans, according to Small Business Trends. For a fee, depending upon the type and complexity of the campaign, TrustLeaf allows you to invite family and friends to pledge financial support for a business venture. The site says it offers standard online agreements for repayment of loans, then manages the loans and keeps track of repayments while tracking your progress.
In a recent release, the company stated: “Friend and family loans provide many potential advantages over traditional forms of investment. They may be available when other capital is not, are often cheaper, offer greater flexibility, and perhaps most importantly, represents validation from key supporters. Many entrepreneurs, however, hesitate to take out loans from friends and family, fearing that it may damage their relationship. The key to avoiding these potential problems is to manage personal loans responsibly, the company claims.”
TrustLeaf’s free Friends & Family Loans Guide is an ebook that recounts the examples of great entrepreneurs and great brands that got their start thanks to funding from family and friends. More importantly, it provides dos and don’ts on approaching family and friends about a business loan. This includes suggestions on the ideal interest rates for personal loans and the creation of a promissory note or letter of agreement to avoid misunderstandings between friends or family members.