Guide to Business Loans from Family & Friends

Put a financing facilitator to work

Small business loans from friends and family often go awry because they haven't been properly structured and administered. Sign up a service that will prepare documents, create repayment schedules, bill, collect payments and provide year-end tax statements.

I recommend: CircleLending has been a pioneer in private loan administration. The firm helps manage transactions such as small business loans between private parties — especially family and friends.

Offer equity in your business

If your business is a corporation or LLC, your funding source can become an equity investor, buying shares in your business.

I recommend: At Intuit's MyCorporation.com web site, you can incorporate a business or form an LLC online for as little as $149, plus state filing fees.

Put your plan in writing

Even with family and friends, you need to put a business plan and request for funding in writing. Make it as detailed, professional and realistic as you can. Aim for full disclosure of all potential risks.

I recommend: A terrific place to find help writing your plan is Bplans.com.

Arm yourself with finance facts

The better you understand the intricacies of financing, the more likely you are to succeed.

I recommend: "Financing Your Small Business: How to Borrow Money from People Your Know (2nd edition)", is a helpful booklet produced jointly by SCORE and CircleLending. Download free at www.circlelending.com.