This type of community capital is not new—borrowing money from friends or family to launch a business has been around as long as money itself.
The main things to remember with this sort of agreement:
- In order to be legal, the agreement must occur between people who have a substantial, pre-existing relationship.
- There should be a written contract that is signed by both parties. The contract should include the names and addresses of both parties, the amount loaned, the interest rate and accrual schedule, the amount of time the loan may be repaid (the “term”), whether there is collateral (a “secured” loan), and what may occur if the borrower defaults. There are a number of simple contracts on the internet which can be used as templates.
- If you are someone interested in investing directly in your community, you may make efforts to establish relationships with local business-owners and, once you have a relationship, inquire about their capital needs.