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Friends, Family and Associates

Whilst initially you may be uncomfortable with the idea of approaching friends or family to invest in your business, it is worth noting that around 90% of Business Angel transactions in the UK fall into this category, according to The Bank of England Report into SME  Finance (April 2004). The amount of investment from this source varies significantly and will depend on the wealth of your family and circle of associates, typically ranging from £2,500, rising to over £100,000.

Investments from friends, relatives and associates can take many forms: it may be the issue of shares (possibly with Enterprise Investment Scheme (EIS) tax relief to Unconnected Persons); or a loan with or without interest. The way that the funds are invested is a matter of negotiation.

Please Note: - As long as you only talk to Friends, Relatives and Associates then there is no contravention of the Financial Services and Markets Act. The range of associates that can be approached is broad and would include a loan or investment from another business associate such as a supplier or a customer. However, it is strictly illegal to solicit investment directly from other people and organisations except those who are authorised under the Financial Services and Markets Act.

Whilst there is generally a level of trust and confidence between the parties when investment is found from friends, relatives and associates, it is always advisable to make a request for funds based on a written business plan that clearly sets out your intentions, including how and when any loans will be repaid or how any return on equity investment will be realised.

Benefits of friends & family investment:

• Established relationship, where trust already established
• Informal or limited due diligence
• Low cost to raise the finance

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