Get Your Business Funded: Creative Methods for Getting the Money You Need

Structuring the Deal

If and when you get to the place where Grandma wants to lend you some money, here is how to put the deal together in a way that protects you both:

Decide what sort of deal it is. As you know by now, a deal like this can be either a debt deal, whereby you are taking on debt for a loan, or an equity deal, whereby you are selling part of your company for the investment. You need to know which it is.

Loan or gift? The other possibility is that the money is a gift. That, of course, solves many of the issues raised earlier, and in addition, may even provide the giver with some tax benefits. Currently, someone can give a gift of up to $13,000 a year without it being a taxable event. Check with your lawyer.

Clearly define the arrangement. While I have said plenty about the risks to the lender, it is also important to consider the risks to you, the entrepreneur. The major one is that your family member may expect to have some sort of say in the running of your business in exchange for the money. Most entrepreneurs don't want that.

If you really want to impress that family member, consider formalizing your arrangement using a third party. For example, LendingKarma.com is an online site that “lays the proper groundwork to help your loan succeed and remove some of the pressure that goes with the personal lending process. We help you to:

• Calculate a payment schedule that works for both the borrower(s) and the lender(s)
• Clearly define and document all loan terms
• Track ...