Borrow money from friends and relatives only after careful consideration. Having a fantastic money-making idea but bad credit may point you in the direction of family and friends.

Financial risk will always be part and parcel of any loan. Borrowing money from family and friends highlights a double whammy though. Risk and emotional challenges.

A well rounded, thoroughly researched business plan can be very effective though. It can lower the risk involved and at the same time allay any fears of emotional challenges.

These issues should already have been settled by the time you discuss the promissory note. The promissory note will require a mutually well thought out plan before it is signed.

The Promissory Note

The promissory note is your promise to pay back the loan. The repayment of the loan is set out in the schedule outlined in the promissory note. All successful loans have as their foundation this type of note.

Without it not only would financial protection for the lender be in jeopardy, so would the relationship. The following are some of the protections that the promissory note provides:

1. It sets out repayment dates.

2. It also sets out repayment amounts.

3. Outlines agreed upon grace periods.

4. Indicates first repayment date and final repayment date.

5. Sets out interest rates.

6. Nullifies confusion, and protects the relationship.

When you borrow money, always observe and gauge your lender. An apprehensive yes may mean yes because of your relationship. But otherwise it would have been no. You could allay that apprehensive yes by offering to secure the loan.

You could put up your brand new Chrysler Jeep as security. This may be just the thing that turns the apprehensive yes into a full-fledged yes, with a smile. You have to gauge that sort of response. Be prepared.

Maybe your lenders concern is not the security but the low interest rate. Stay in the zone. You know the person. Again, be prepared. Make a response. It could be the seasonal nature of your product causing concern. Realistically adjust your payments for that time period.

Have you considered a third party? A third party would diffuse a whole lot of discomfort.

When the note has been signed, and the borrowed money received, you must know when the repayments are due. Should you encounter repayment challenges, immediately communicate with your lender. Do not miss payments and leave your lender in the dark.

Should the need for a readjustment to the repayment schedule be necessary, work it out with your lender. Keep communication lines open. Protect your relationship. You don’t want a ruined relationship be the main conversation at thanksgiving.