There might be a time when you need to borrow money in order to get your business off the ground or in order to get it back on track. For example, you might be having a few troubles with the merchant accounts for your business and you are unable to accept payment methods that draw in more customers. Although there are quite a few different options out there for you when you need the money, you might also be considering borrowing money from your family members. This might seem like a reasonable option, especially when even your family members have the option of taking advantage of credit card processing in order to ensure payment. However, there are some disadvantages that you will need to consider.
Advantages of Family Business Loans
One of the main advantages of getting a business loan from a family member is the fact that the process is a lot simpler. Most of the time the trouble that comes with credit card processing for an official loan is not applicable for an unofficial family loan. In addition, a complicated approval process and loan application is not required. When you apply for a loan from a bank, you can be waiting for weeks for an approval response. Borrowing money from a family member can take a few days. In addition, a promissory agreement is all that is required to make sure that things run smoothly. Another advantage is the fact that most family loans feature small interest rates or even no interest rates at all.
Disadvantages of Family Business Loans
If you get a loan from a bank in order to get your merchant account started and your business of the ground, your lender has the power to report the history of your payments to a major credit bureau. However, if you get a loan from a family member, making your payments on time and paying off the loan will not be shown on your credit report.
When you borrow money from a family member you have to consider what will happen if you do not make your loan payments. Your finances will not be the only thing at stake. Borrowing money from family members can cause conflict issues and even mistrust. Family is important. If you do not pay the money back, arguments are sure to follow and the relationship you have with your family could be ruined.