Friends and family
Money from people you know, as a loan, as shares, or both. Often the first money into a new business and on flexible terms, but it puts relationships at risk if things go wrong.
- No security
How it works
Many businesses start with money from family members, friends or former colleagues. It can be:
- A loan: agree the amount, any interest, when it will be repaid and what happens if the business cannot pay. Put it in writing.
- Shares: the person becomes a shareholder in your company and shares in its success or failure. Agree a price per share and record it properly.
Tax relief: investors in shares may get income tax relief under SEIS (50% relief) or EIS (30% relief) if the company qualifies. But relief is not available to an investor who is employed by the company, or who holds more than 30% of it together with their associates. Associates include a spouse or civil partner, parents, grandparents and great-grandparents, and children, grandchildren and great-grandchildren.
Promotion rules: inviting people to invest, in the course of business, is a financial promotion. The law restricts these unless an exemption applies or an FCA-authorised firm approves them. Keep to people you know, and take advice before asking more widely.
Upsides and downsides
Upsides
- Often available when banks and investors are not
- Flexible terms, and quick to agree
- Backers who believe in you
- Investors in shares may get SEIS or EIS tax relief
Downsides
- Puts personal relationships at risk
- Informal deals can cause disputes later
- Usually limited to small amounts
- Close family members cannot get SEIS or EIS relief
Risks
- Family or friends losing money they cannot afford to lose
- Arguments over control, repayment or the value of shares
- Breaking financial promotion rules by asking too widely
What it costs
- How it is priced
- Whatever you agree. Interest on a loan, or a share of the business
- Costs that are easy to miss
- Legal costs to document a loan or share issue properly
- Strain on relationships if the business struggles
- Giving a share of future profits and a say in the company to shareholders
Depends on what the people you know can afford to lose. Only ask for money they could lose without hardship.
Have an offer? Dilution calculator: see what you would own after each round
Does it fit?
Could fit when
- You are just starting and need a small amount before banks or investors will help
- You have people around you who believe in what you are doing
Unlikely to fit when
- You need a large sum
- The people you would ask could not afford to lose the money
Who can use it
- Business types: Sole trader, Partnership, Private limited company, LLP, Public limited company, Community interest company, Co-operative or community benefit society
- Open to businesses with no sales yet
- Shares need a company. Sole traders and partnerships can only borrow
- SEIS and EIS only apply to qualifying companies and investors who are not connected to them
Am I ready?
What a provider is likely to ask for. Tick what you have. Your ticks stay in this browser and nothing is stored. Checklist for all private equity investment
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- Written terms
- A plan you can share
- SEIS or EIS checked (for shares)
Regulation and protections
A private arrangement. Promoting investments in the course of business is restricted by section 21 of the Financial Services and Markets Act 2000, unless an exemption applies or an authorised firm approves the promotion.
Types of provider: Family members, friends and people you know.
Also consider
Sources
- GOV.UK: Venture capital schemes: tax relief for investors · checked 7 October 2026
- legislation.gov.uk: Financial Services and Markets Act 2000, section 21 (restriction on financial promotion) · checked 7 October 2026
- British Business Bank: Understand finance options · checked 7 October 2026