Even if you’ve been less than stellar with your finances in the past, you can still borrow money that you might need from family or friends. This is especially important if you currently pay high interest rates and want to refinance at a lower rate. If that describes you, your friends and family are a great alternative to things like credit card debt.
The first step is to be absolutely clear on how much money you need, why you need to borrow the money, and (most important) how you’re going to repay the loan.
You’d think that most people know exactly how much money they need, but that’s not always the case. Tim, a young man I know, recently went to his brother so he could realize the full value of his college education – by completing it. He asked his brother for $5k to cover his upcoming tuition payment. But when they looked at the issue more carefully, they realized that $5k was only the tip of the iceberg.
Tim would need money for room and board and books a few months after his tuition was due. It would have been difficult for Tim to keep going back to his brother for more money because he’d lose credibility.
It’s far better to be clear on your objective and think about the total costs you’re going to incur. Then add 10% (at least) before you go looking to borrow money. This way you won’t have to go back to the well.
And while we’re talking about steps you need to take before you ask anyone for a loan, make sure you hammer out a solid repayment plan. If you don’t have a plan on exactly how and when you’re going to repay your debt, get one. If it includes looking for a second job, go get the job. If it includes selling your junk on eBay, start listing your items. Whatever you do, don’t ask anyone for financial support unless and until you have a solid plan for how you’re going to repay the money.
This step is as much for you as it is for the potential lender. I say this because it’s important you have self-confidence when you approach people. Your repayment plan will give you that self-confidence. It has to spell out exactly how much money you’ll be paying and how often. Don’t promise anything you can’t live up to, but make sure you do whatever you have to do in order to come up with a solid plan.
Once you’ve come up with your plan, it’s time to list the people you think might be interested in doing business with you. Jot down their names and what interest they may have in loaning you money. Those interests probably include helping you out, getting their money back and making some interest. Are there any other motivations this person has? What are they? List them and next to those motivations note how this loan gives them what they want.
Write out how this loan is going to help you. How the loan will make a difference in your life. Next, detail how you’re going to repay the loan so they feel confident they’ll get their money back. Finally, make sure to insist they get a good return on their money. This way they’ll consider it an investment rather than charity.
There is a reason you should write this out before the meeting rather than winging it. By reducing your thoughts to writing, you’ll be ingesting it and making the plan a part of you. Also, when you meet with potential investors, show them what you wrote down. It demonstrates that you are taking this seriously, and that will instill confidence that you’re going to stick with your plan to repay the loan.
Approach each person one at a time. Do not have an expectation that they’ll automatically lend you the money, and don’t resent them if they turn you down. It doesn’t mean they don’t care for you. Just go to the next person on your list. (That’s another reason why you created a list of potential lenders.)
Of course, if all this seems like too much work, there are plenty of ways to borrow money without going through this process. They are simpler and less stressful, but potentially more expensive. They include taking out a bank loan, peer lending, cash advances, and payday loans. These may not be particularly attractive ideas, but they’re relatively easy.
You can and should give your friends and family the opportunity to invest in you. If you show them how much you’ve put into this process, the chances are high that they’ll be willing and eager to do so.