September 20, 2014

TrustLeaf Helps You Structure “Family and Friends” Loans for Your Startup

trustleaf

You may have heard that borrowing money from family and friends to start a business is a bad idea. Still, the fact of the matter is that many entrepreneurs have gotten their start this way leading to the founding of many well-known brands.

For example, entrepreneur Jim Casey started the business that today is UPS way back in 1907 with a family loan of just $100.

Sam Walton, legendary founder of the WalMart chain, borrowed even more — $20,000 — from his father-in-law to open his first store.

Finally, John Mackey and Renee Lawson, who would together go on to found the popular Whole Foods store and brand, would do so with a $45,000 loan from family and friends back in 1978.

A Sunnyvale, Cal. startup called TrustLeaf is attempting to simplify the method by which entrepreneurs can approach family and friends for loans.

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.

According to the company, 38 percent of the estimated 6 million small businesses started annually in the U.S. begin with funding from friends and family.

In a recent release, the company explains:

“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 also recently released a free Friends & Family Loans Guide. The 19-page ebook recounts the examples of great entrepreneurs and great brands including those listed above that started out thanks to funding from family and friends. But it also provides tips on avoiding awkwardness while approaching family and friends about a business loan.

Finally, the ebook includes suggestions on the ideal interest rates for personal loans and the creation of the necessary documentation to keep track of personal loans and avoid misunderstandings between friends or family members about the rates or other details of repayment.

Personal loans from friends and family may be an option entrepreneurs need to consider when other funding opportunities are scarce.

TrustLeaf hopes to provide services for those entrepreneurs who may need a source of funding from investors who already know and trust them.

Image: TrustLeaf

7 Comments ▼

Shawn Hessinger - Editor


Shawn Hessinger Shawn Hessinger is the Editor for Small Business Trends. He is a journalist and social media networker with more than a decade of experience in the traditional newspaper business before moving to the digital world. He was the former community manager of BizSugar and the former community editor at AllAnalytics, a site dedicated to professionals in the business intelligence and analytics community.

7 Reactions

  1. I guess this just makes the transaction looks more formal. After all loans from friends and family are more like asking for allowance and paying it later. It is rarely formal. I guess a site like this can help in formalizing things or you can just have a lawyer notarized a contract between the two of you.

  2. This is a pretty old concept and seems like marketing hype to me. LoanBack.com, LendFriend.com, LendingKarma.com, ZimpleMoney.com, Nolo.com, LegalZoom.com, RocketLawyer.com, etc., all offer very cost effective solutions for business loans between friends and family. As most small businesses fail, “investing” in a family member’s or friend’s business is stupid. You’re not getting your money back. People who engage in these types of transactions are typically investing their money in their relationship with the biz owner, not in the biz itself. This is why people with common sense gift money to friends and family, they don’t lend it. Furthermore, bankable entrepreneurs, (1) don’t ask friends/family for money, and (2) if they need to ask for money, they should ask them face to face; not through some impersonal “campaign”. If 38% of small businesses are already getting help from friends/family (curious to know the split between loans vs gifts), what problem is this company solving?

    • Hi Mark,

      Far crazier business concepts than this have been valued at a billion dollars plus.

      Instagram. Snapchat.

      Give me a few minutes and I will think of some more. :)

      I rest my case!

      – Anita

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