Whether you're starting up a new business, moving to another city, putting the kids through college, or paying off your maxed out credit cards, the time may come when you need to borrow some much-needed money. Lots of folks take the bank loan route, but not everyone qualifies, interest rates can be exorbitant, or another roadblock can make this path difficult or impossible to take.
That's why borrowing funds from family or friends becomes a feasible solution for those in need of financial aid. But before you take that route, consider the pros and cons of borrowing from those close to you. It's a blessing for a loved one to offer or agree to help you out, but there's more that goes into the transaction than a smile and a handshake. Weigh these plusses and minuses to assess whether or not borrowing from a friend or family member is the best choice for your financial needs.
When you're dealing with a personal friend or family member, things aren't as rigid as they might be when working with a bank for financial loans. Someone close to you may not even take your financial history or past debt into consideration. They may give you a longer time to repay the loan or allow you to pay back sporadically, when you've got the money to do so.
Intuit QuickBooks notes, "Young entrepreneurs and those with poor credit may struggle to secure a loan through traditional means. According to a recent university study, just 39% of small businesses managed to secure funding through a bank, with the most common causes of rejection being insufficient debt load, cash flow and collateral. A benefit of borrowing from loved ones is that you don't have to jump through the same financial hurdles to be approved. Because they are eager to help you achieve your goals, friends and relatives will often lend to you in cases where banks would not."
So if you need flexibility, borrowing from friends or family can really help you get off the ground or out of a hole. Unlike a bank, they may give you a grace period where you needn't pay them back for months until you can do so with confidence and without the fear of falling back into debt. But don't forget, as Chron encourages, "No matter what terms you work out, it is important to put them in writing. All parties must understand, and agree to, the terms of the loan and the repayment arrangement before signing the loan paperwork."
Lower Interest Rates
Another perk of borrowing from friends or family is the ability for them to allow you to pay them back with much lower interest rates than the bank might. At the end of your borrowing period, this will have saved you lots of money that you can put to better use than giving it to a bank.
If you are embarking on a startup business, a bank may charge high interest rates, as per Intuit Quick Books. "Because of the inherent uncertainty of small businesses and startups, banks tend to charge higher interest rates on loans for newer businesses than for more established companies. One of the benefits of borrowing from friends and family is that you can typically land a lower rate. Not only does this reduce your overall debt level—helping to boost long-term credit for your business—but it also enables you to invest more of your hard-earned cash back into the company. Investing money back into your business will help you grow faster and ultimately pay off loans quicker."
Even though the rates may be better thanks to family or friends, Chron still warns to get the terms laid out in writing and agreed upon by both parties. "Of course it is important for all business loans, even those financed by family members, to be properly structured. The startup money you receive should be structured as a loan, with a written loan agreement, monthly payment terms and interest rate clearly spelled out. This will help you avoid disputes in the future and protect your interests in the event there are problems down the road."
They Believe in You
While it may seem hokey, one reason borrowing from loved ones can be ideal is because they care about you, want to see you succeed, and trust you. While a banker may agree to lend money, they don't have that same level of investment in your well-being – in fact, the very opposite could be true.
As Small Biz Daily says, "No one believes in you like your friends and family do. Assuming you have a good relationship with your family members, they're naturally inclined to lend you money—after all, you're family! Friends and family members are motivated to help you financially because they want to see you succeed, unlike outside lenders and investors who are motivated solely by their own financial gain."
Prove to your loved ones that you're reliable and this will be a successful financial agreement. Don't take their generosity for granted and treat them with the same respect you'd treat a financial institution, and the interaction will be smooth.
While the lender may have the best intentions for you, make sure they don't get hit with tax problems because of poor documentation or preparation. According to Intuit Quick Books, "In their eagerness to help a friend or loved one in need, lenders may neglect to consider the effect a loan will have on their tax liability. Not only does insufficient loan documentation open the involved parties up to IRS scrutiny, but it may also lead to a contribution being categorized as a gift instead of a loan."
To prevent any issues, have a promissory note and detailed and signed documentation along with an agreed upon repayment plan. Intuit Quick Books suggests to take the same steps a bank or credit union would when setting up the loan, and you'll be clear of any tax violations or liabilities.
Can Affect Relationship
Money issues have been known to break families apart and put strains on friendships. What if you cannot pay back on time or need even more money than you initially thought? How will you separate the financial side of the relationship from the personal? Can you? Think about things not going swimmingly and talk about that openly before making a loan arrangement with a loved one.
Aabaco Small Business makes the point, "While your family supports you in your business endeavor, they might not truly understand the risks they would be taking if you were unable to pay off the loan they give you. If your business fails and you are unable to pay the loan, you may put your family member in his own financial crisis. This can put a serious strain on your relationship. Is it worth the risk?"
If you and the person lending are aware and OK with the potential twists and turns and bumps in the road that may come, but still believe you can manage the financial arrangement, go for it. Just be sure your faith in the strength of the personal relationship will make it through the hurdles.
Lack of Clarity
A big problem that can come from borrowing from a friend or family member is a lack of a clear-cut arrangement that can become something that over time is misconstrued or forgotten. As per Chron, keep things as formal as possible. "Many people treat loans from family members as informal transactions, but that is a big mistake and can be a big disadvantage of borrowing money from family members. The best way to avoid this problem is to document the loan as thoroughly as you would if the money was coming from the bank. Ask your business attorney to draw up the loan paperwork, detailing the amount borrowed, the interest rate and the required payment terms. Have your family member read the document carefully and take it to his attorney as well."
Just because you have a personal relationship, it doesn't mean the financial aspect should be as easy breezy. It's OK for the lender to have questions, stipulations, and barriers as long as you both work through them and come to a clear and formal arrangement in the end.
A friend or family member can be a lifesaver for you when you're in need of money. Weigh these pros and cons before making any major financial plans and you'll know whether it's best to go with a loved one or seek out a bank. Friends and funds can work harmoniously, but only if you think it through and take things as seriously as you would with a bank.
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Between buying a new home and transporting yourself and your belongings to it, moving can be an expensive process. One often underrecognized cost of moving occurs before one's original house has even been sold, and that's staging the house. Homeowners often spend hundreds of dollars making a home appealing to potential buyers. To ease the financial burden of moving, here are several tips for staging your home on a budget.
Downsize Instead of Storing
The goal of staging a home is to create a blank canvas that potential buyers can imagine their own lives painted upon. To accomplish this, homeowners should depersonalize the home as much as possible, removing items that are specific to their family and eliminating clutter. This is where homeowners often incur their first costs as they rush to put as many older things in storage as possible.
To cut costs, focus on downsizing rather than storing items. Look for items that you can sell, donate, or give away. For remaining items, look for alternative places to store them, such as a friend or relative's house. This will also reduce the cost of moving your belongings when it is time to go to the new house.
DIY What You Can
There are times when homeowners should bring in a professional to manage home renovations and decorating, such as when a task requires specialized skills. These types of jobs, when done incorrectly, will incur even greater costs if attempted on your own. However, many of the home improvement tasks that go into staging a home are simple enough that the homeowner can DIY them, such as painting, installing a backsplash, or refinishing the deck. Doing these tasks yourself will save you a significant amount of money.
Don't Redo, Update
Homeowners are often eager to make their houses look as appealing to buyers as possible. However, recall that the point of staging is depersonalization, making a home presentable so buyers can mentally impose their own style onto it. When staging a home on a budget, focus less on completely transforming the space and more on making what is there look presentable. For instance, if you wanted to give your bedroom a facelift, trying to replace the furniture and flooring would be pointless unless it was damaged or unkempt. Simply organizing the space and replacing the bed's comforter would be sufficient.
Another way to update the space without entirely redoing it is to rearrange it to maximize the space that is already there. For instance, pulling the furniture away from the walls will make a room appear bigger and allows more space for those touring the house. Using window trimmings that maximize natural light and incorporating wall mirrors can also make a room seem more spacious.
Raising a larger family than most means that your lifestyle is going to change. Costs will continue to multiply as your family grows larger. However, just because your family is large doesn't mean your quality of life needs to suffer. It just means you need to make a few adjustments to help things work smoother and more efficiently. We've compiled a couple of money-saving tips for larger families to help you get the most out of your dollars.
Always Buy in Bulk
The benefit of having a larger family is that things you buy in bulk rarely ever go to waste. Smaller families can benefit from buying in bulk, of course, but your large family will see the most use out of shopping in large quantities. You'll want to avoid going to smaller stores for necessities such as groceries and clothes, as these places generally have higher markups on their items.
Buy Wholesale Items Online
If you want to take buying in bulk to the next level, one of the best money-saving tips for large families is to buy online from wholesalers. Buying online comes with a number of benefits that you won't get when you go to a physical store:
- You don't have to drag your kids to the store with you
- You have a lower probability of making impulse purchases
- You can search for exactly what you need
- Wholesalers sell in very large quantities for a lower price per item
Never Throw Away Something Useful
When you have to buy things for multiple children, your costs to replace items will be much higher. That's why it's so important to keep everything you can. Clothing is a big part of this. Hand-me-downs can prevent you from needing to replace entire closets every year. Try to repair or upcycle any clothes that may have damage, as this is usually much cheaper than buying brand-new items.
Stick to a Budget
When you support a large family, expenses can sometimes get away from you. Proper budgeting helps to keep the extra purchases that add up to a minimum. Budgeting correctly can save you a lot of heartache in the long run. It's up to you how much control you want to take; you can make your budget weekly or monthly, depending on how tight a ship you need to run. What's important to remember is that making the budget is only the first step—sticking to it is where you'll really need to enact some willpower.
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Sometimes there is no choice—a home needs to be sold in the winter.
Spring may be the most popular time to put your house on the market, but homes do sell in the colder months. With fewer houses available, your home may be someone's only choice when house hunting in your neighborhood. As your neighbors hold out until spring, you'll already be done and ready to shop for your next house!
Here are a few tips for selling a home in the winter to get you on the right track.
Keep Paths Safe and Landscaping Fresh
Landscaping is the last thing on a homeowner's mind in the winter. Everything was cut back in the fall and may now be covered in snow. Still, take a walk around the house and yard to check everything out. Branches may have fallen from heavy snow, leaving a mess in the yard. Keep everything neat and tidy.
The last thing you need is a potential buyer slipping on the ice-covered walk in front of your house. Buyers often consider those moments bad omens, and this can affect their decisions. Shovel, snow blow, spread salt—do whatever you have to do to keep the driveway and walking paths clear, and don't forget the porch and deck.
Make the Inside Warm and Cozy
In cold weather, buyers won't spend a lot of time examining a home's exterior. Instead, impress them with the inside by creating an atmosphere which causes them to want to move in.
When there's time, leave wintery types of snacks and drinks, such as hot cocoa and cookies, available on a table during showings. This gives your home a welcoming feel to buyers.
Light the fireplace (if you have one) for a lovely ambience and set your thermostat to a comfortable setting. A warm home in the winter is much more appealing than a chilly one.
Make Your Home Less Personal
Understandably, this can be a tough thought for homeowners. After all, you've spent years creating memories in your home. To buyers, though, they need to picture it as their own. Too much personality makes that difficult.
It's always important to stage your home in a way that makes it look clean, comfortable, and move-in ready. Don't feel offended by the idea of taking family pictures down and replacing them with generic décor. This will help your home sell faster by helping buyers envision their own things there.
Cleanliness and Maintenance
Clean, clean, and clean some more. Make appliances, counters, and floors shine. No matter how old your home is, it needs to feel like new to potential buyers. If you aren't into dusting, now is the time to try. Don't forget window coverings that might need washing.
Be prepared ahead of time for home inspections by taking care of maintenance now. HVAC systems, plumbing, and electrical should all be up to code and running smoothly.
Use these tips for selling a home in the winter, exercise patience during the slower months, and your home will sell before you know it.