Borrowing from Friends and Family
While family and friends can provide important emotional support for a new business, entrepreneurs should think twice about asking loved ones for financial support.
Undoubtedly, it's easier to secure a loan from Aunt Hazel than a venture capital firm in Silicon Valley. The venture capitalists will ask for a detailed business plan with clear profitability estimates. They'll want to see your market research and run tests on your product. Aunt Hazel might just ask you to clean out the attic first.
Easy money is not always the best kind of money, however. Aunt Hazel might not be the most savvy investor. She might not spot the gaping holes in your business plan or the general lousiness of your idea. The venture capitalists most definitely will.
If you secure a loan from a third-party lender, then you've passed an important litmus test. It's proof that you've done your homework. Banks don't lend money because they love you. They lend you money because they want it back with interest. If a conservative institution like a commercial lender thinks you're going to succeed, then that's a good sign.
Relying on family as investors also has the potential to create a "too many cooks in the kitchen" problem. You don't want to receive six different opinions for every business decision you make. And managing all of those relationships will quickly take time away from more important business matters.