Raising Love Money

You’ve recently built a multi-million dollar manufacturing plant—which was financed through private equity—on a 10-year payback schedule that will take your company to the next level. Unexpectedly, though, this expansion opened a new market resulting in the need to build a storage facility to handle goods distribution. You’re reluctant to return to the private equity markets because the capital stake (under $1 million) would be viewed as small potatoes. So you turn to your family and friends for financing, a.k.a. love money. This is risky to both your relationships and to their financial security. To balance the liabilities, here’s what you need to do:

Inform your investors

If you were taking money from a bank or a private equity firm, you’d provide a business plan—including your financial statements, an industry analysis and comparison, the risks and the challenges ahead, a three-to five -year cash flow analysis, proposed annual budgets, stated purpose for raising funds, an estimated repayment period and, ideally, a minimum return on investment. Your family should be entitled to nothing less.

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