With venture capital funds at low levels and banks that are more reluctant to lend, many entrepreneurs are forced to find more creative ways to raise money needed to start and run their business. One old way that still makes sense, especially in today's market, is tapping family connections. But failing to follow professional lending standards will most likely cause friction in your relationships and damage your credibility when later asking for funds from banks or professional investors.

This article by Cliff Ennico - former host of MoneyHunt (the popular PBS show for entrepreneurs) and author of The Small Business Survival Guide - suggests some basic rules you can follow if deciding to borrow from friends or family:
1.  Treat your borrowers like strangers
2.  Don't sell equity, instead try to settle for a loan
3.  Tie your repayments to your cash flow instead of a fixed schedule
4.  If selling equity, consider nonvoting stock

Raising money from family and friends can be a great deal as long as you find a way to keep business and personal feelings separate.