Innovation

3 Tips for Avoiding a Fight Over Family Financing

Having a tough time getting funded? Avoid the temptation to draw on the bank of brother

Written by Advisory Board

Welcome to Advisory Board, a weekly department in which a panel of experts—made up of entrepreneurs and professionals—answer questions you have about how to run your business better.

This week, a reader asks:

“I’m trying to launch a new venture and am having trouble lining up financing. My brother has offered to invest in the business. What’s the worst that could happen?”

Here’s what the experts have to say:

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“The worst that can happen is you lose a brother and a business. IF you choose to borrow from your brother secure it just like a bank would. Sign agreements, pay him interest and put something up as collateral for the loan. I would rather get a loan with a bank and have your brother guarantee it than get the loan directly from your brother.”

Kelsey Ramsden, business guide and founder, SparkPlay Inc., London, Ont.

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“The worst that could happen is that your brother loses his money and you lose or seriously damage your relationship with your brother as a result. There are no guarantees with any business, and there is always high risk involved with a start-up. I recommend doing everything you can to avoid involving family and close friends.”

John Wilson, founder and CEO, CEO Global Network, Toronto

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“The challenge with having your family in your business is that you can’t fire your family.  If you and your brother really want to make this happen, make sure you agree on some ground rules about roles, responsibilities, and how you will work together and resolve disputes. Have it in writing, and include a protocol to bring in a mediator in the event of disputes.”

Phoebe Fung, proprietor, Vin Room and VR Wine, Calgary

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Originally appeared on PROFITguide.com