Start up money for getting a business off the ground has always been a concern to the first time entrepreneur, unless he or she has sufficient funds stashed away. Some dated statistics (about a decade old) on small and medium sized businesses in North America show that about 50% of owners of such enterprises borrow money from financial institutions, usually a bank. Around 35% use their available credit on personal credit cards to finance while 12% finance their businesses with private loans from friends and relatives and the remaining 3% get loans from non related private lending.

From the above it is evident that private lending funds a lot of businesses, even if the source is usually a close relative or friend. The initial source of funds especially for small businesses is usually garnered from accumulated savings such as pension funds and severance payments or by selling off personal assets and or property or using credit cards. This is because the first time entrepreneur may not have enough collateral or sufficiently good credit history to qualify for a small business loan from the banks. Taking loans from friends and relatives is not always the best idea as it is comes with the danger of misunderstandings arising between the borrower and lenders, so it is always best to list the terms and conditions, put in the repayment schedule, details of security that needs to be kept as well as other financial details and all these should be written down and signed by all the affected parties.