Borrowing money from family or friends

Do your family or friends want to lend you money to help you launch your business? This type of ‘informal’ or private loan may be a good solution for you. Always make clear agreements about the loan amount and repayment. But what should you be aware of and where can it go wrong?

What is a private loan?

Borrowing money from family or friends is also called a private loan. This is because it is not offered to the public.

Arrangements for a private loan

When arranging a private loan with family or friends, be sure to include the agreements in a contract. You can create this contract together. It should include the following details:

• The borrower and lender
• The loan amount
• The interest rate (or other compensation)
• How the loan will be delivered
• How the loan will be repaid
• The duration of the loan

 You should also make agreements about: 

• What happens if the loan is not repaid
• (Interim) cancellation
• Early repayment
• If you can use other types of credit during the loan period

Borrowing money, interest and tax

Be careful with interest-free loans

Be careful if family or friends want to give you an interest-free loan. The amount of interest that you will not pay will be seen as a gift by the Dutch Tax & Customs Administration (Belastingdienst). If it exceeds the gift tax exemption, you will have to pay tax on this benefit.

Choose a market-based interest rate

You avoid this problem with a market-based interest rate. The current financial market determines the interest rate. Based on this, family and friends can calculate a fair interest rate. It should be no more than 14% (in Dutch). From 1 January 2024, the maximum interest rate will be 15%.

An interest rate is seen as fair if it is the same as the rate a lender, such as a bank, would charge for a comparable loan. You can find interest rates on the websites of lenders. In case law, a reasonable interest rate should be no more than 25% higher or lower than the rate a bank would charge. For example, if a bank charges 6% interest, the interest rate for the private loan can be between 4.5% and 7.5%.

Think carefully about a private loan

If you are borrowing from someone that you have a personal relationship with, it is important to consider what could go wrong. If your business is temporarily struggling, you may not be able to repay the loan for a few months. This can affect your relationship. Before you arrange the loan, think carefully about if your relationship can withstand this. If you think this may not be the case, there are other ways you can borrow small amounts of money. 

Get help with financing

Getting help increases your chances of financing. With the right advisor and a good financial basis, a 'yes' to your financing application is within easy reach. These advisers will help you on your way.

Video: Financing your business

What are other ways to finance your business? And which parties can you turn to? This video explains it all.