Is It Ever a Good Idea to Take Money from Family and Friends?

The VC world has made it appear as if a fashion startup should always be getting fundraising and capital from outside resources before actually launching their fashion businesses. And to be honest, the tech startup community is also to blame for making it seem as if there can be an MVP or minimum viable product in the fashion space. It’s just not possible. You need startup capital, you need to be able to build a brand, build a voice, and build a product before your company will be ready to get outside funding.

Not everyone’s going to have a great story like Glossier. In fact, when Emily Weiss went to do her funding, she already had a lifestyle platform, she already had thousands of engaged users using her blog and really expressing needs, interests, and passion. She was able to raise funding based on what she had, which was a community and traction. However, that is a very different story than a lot of the fashion startup businesses out there that are launching based on great products or great ideas that need startup capital to get going with first production or their first photoshoots or pop-up shops. If you’re not in a position to leverage your community like Glossier did, start to look at your savings as a first resort and then start to tap into other different modes of financing.

The Credit Card Dilemma

Let’s say you have a credit card that might have a limitation of $50,000. You do have to look at your startup costs and say to yourself, “Okay, well, that $50,000 is only going to take me so far. How am I going to make up the rest of that $50,000 or $100,000 in order to cover my operating costs? Looking at credit cards as a possibility, or a line of credit, is not always my preferred method because you simply usually need more money than what you have access to. That compounded with the fact that over time, the interest that you’re going to be spending on credit cards is going to be substantially higher than those that you would acquire from let’s say, friends and family loans at the start of your company.

Borrowing from friends and family is a lot better than looking at credit cards, is a lot better than getting an outside business loan. Be sure to still write contracts, making sure that if it is a loan, there are repayment terms included. However, it’s going to be a lot more flexible with lower interest rates and easier opportunities to pay back than let’s say trying to do it all on your own via a credit card or line of credit.

How to Approach Friends and Family

Make sure you have a business plan in place. It doesn’t have to be the most complex plan, it doesn’t have to be so thoroughly built out as if you were approaching a potential VC or investor. However, it should be something that is really detailed and thought out, so that your friends and family who may not have any idea what it’s like to run or manage a fashion business will be able to understand how much capital you need, when you might need another round of capital injection, and what kinds of ROIs you should be expecting as a business owner.

Now again, friends and family are going to be more lenient when it comes to interest rates and payment terms. However, you also need to treat them as sincere investors in your business. Lots of people who do friends and family raises on Kickstarter even go a step further to be able to provide people with their financial projections or where they think their business is going to be heading and where they think the financial opportunity is for them as investors in the business.

To get more on this topic, head on over to our blog to find out more about how to start a fashion label and how much money you really need. Also be sure to download our free resource, the pricing and profitability cheat sheet. This is going to be your key opportunity to find out how your pricing impacts your business and how profitable you can really be.

When you’re ready for strategic business advice and consulting to launch or scale your business, send us an email at hello@scalingretail.com.

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