Whether it’s asking to borrow startup capital or partnering a joint venture, going into business with family may not always be the brightest idea and can end up more costly than traditional methods of getting financed. There can be major pitfalls and endless consequences if unforeseen obstacles arise, plans are dashed, and money is lost.
No matter how prepared your relatives might be to take a loss in support of your dreams, if the deal goes sour in some way, it will likely damage the relationship. If in the future, they or other family members mention your failed venture directly or not, they will still serve as a reminder. In the worst case, family gatherings could forever be altered by tension and arguing, which would have never happened if you had just borrowed from a bank or formal investor.
Once you shift your relationship dynamics, even with your friends, you can never go back. While it’s true that some familial partnerships turn out quite successful, it’s a risk to what otherwise might be happy healthy bonds. Even on the simplest levels of doing business together, potentially awkward situations are introduced, for example, one might expect certain discounts, perks, or even a cut. This could also invite one to impose their opinions over your operations after investments have been made, and you can feel somewhat beholden. Traditional lenders won’t be calling after hours, or at the next family function, or the function two years from now. Banks can’t speak to other friends and relatives about you.
There’s also the hazard of worlds colliding and networking gone bad. Once you start mixing your business circles with your personal circles, it’s an opportunity for unnecessary drama. If anything negative happens between a professional associate and a personal friend, you’ll regret ever crossing your lines. It’s wise to proceed with caution when making introductions and playing matchmaker.
When seizing on that golden idea or expanding existing projects, it’s smart to weigh the benefits of asking your family, as organic and obvious as it may seem. Investigate options, talk with someone from the SBA, it might save you a lot of trouble down the road. Even if at first glance the uncertain path to borrowing money may seem the longest, at least you keep the choice of which direction to go along with peace at home.