Are you looking to provide funds for a new business being setup by one of your Friends?
Friends are the second source of funding a budding entrepreneur tries to tap, after utilizing his own kitty. Wealthy friends or those who have generated substantial savings are always the most preferred source that entrepreneurs look forward to.
The investments from friends are typically small, and remain the most apt source of funding when you need to start on a small scale. These investments can be in the form of a share in the business and its profits, a commercial loan with regular interest payments, or even as an interest-free loan.
Friends are often pre-sold on the business idea even before it is put on paper. Further they have complete faith in the entrepreneur's abilities and want to help him grow big. Their decision to invest is usually not based on any financial analysis; but on trust and their personal relationship. This is why they are also referred to as 'Friends & Fools'.
Most people prefer taking money from their friends as they might not be eligible for a commercial loan from banks and financial institutions, which requires a strong credit history and collaterals. Moreover, friends provide faster access to cash as there are no legal and other formalities to be fulfilled. However, the flipside of lending money to friends is that personal and professional lives get intermingled, and this can adversely affect the relationship. If the business fails or if there is delay in repaying the money, it may lead to conflicts.
- The investment done by friends is based on their subjective opinion, and not objective research. They might lack the ability to conduct proper research into the business idea.
- Lack of a well-defined holding period and a proper exit route from the business
- Tracking the real progress of the business, in terms of actual revenue and profit growth
- Conducting in-depth research of the business idea to analyze and quantify the risk and returns involved with the investment
- Planning a mutually agreeable exit strategy to cash out of the investment, by bringing in venture capital investors at an early stage and public offerings thereafter
- Loan management of your behalf to track all the repayment terms
- Conducting regular financial analysis and audit of the business, to provide updates regarding its current state and future prospects
- Help you maximize returns from your investments with professional advice and quality research
- Helps identify exit routes which are in sync with your investment priorities and the changing business requirements
- Professional services ensure complete transparency in all the transactions including loan repayments
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