Start-ups warned about borrowing from friends and family

Start-ups are being encouraged to think twice before borrowing money from loved ones, with a new report revealing 20% of Australians have lost friends over borrowed money.


The study, by the Commonwealth Bank, is based on a survey of 1,193 Australians aged 16 to 39. It shows the average Australian borrows more than $200 from loved ones every month.


This equates to more than $1.6 billion a month, with “unforseen or emergency situations” identified as the most common reason for borrowing (49%).


The study shows women borrow almost twice as much as men ($9.8 million compared to $5.8 million), while those aged 18-24 borrow $2.4 million more than those aged 30-39.


Meanwhile, those living in capital cities on average borrow almost three times as much as those living in regional areas ($1.2 billion in total, compared to $3.4 million).


While the majority of respondents (85%) say they were brought up to repay their debts, 49% have experienced disagreements when it comes to paying loans back.


Meanwhile, 20% of Australians have lost friends over lending and borrowing money.


According to David Lindberg, Commonwealth Bank executive general manager of cards, payments and retail strategy, millions of Australians rely on informal borrowing networks.


“[But] borrowing money from friends and family can be the cause of disagreements, whether that’s over the amount or best way to pay someone back,” Lindberg said in a statement.


Pierre Boutros, whose business almost went under when he failed to implement a sales strategy, says his business would not have survived had it not been for the support of loved ones.


Boutros is the founder of consumer technology retailer Millennius, which incorporates the technology of well-known manufacturers such as Intel, LG Electronics and Samsung.


“I started on eBay selling MP3 players and stuff like that. Then I thought I could sell anything after that, so I started getting into TVs and brought in containers of 42 inches,” Boutros says.


“I started pre-selling them on eBay but I couldn’t sell them all. I wasn’t aware of eBay’s selling limits and my account was stopped.”


“That’s when I had to get some money from friends and family, and try and sell the rest within four weeks… I had to sell about 200 or 300 TVs in three or four weeks.”


Boutros managed to pull it off, but vowed never to put himself in such a precarious position ever again.


Meanwhile, StartupSmart mentor Tony Faure, former managing director of Yahoo! Australia and New Zealand, says it’s easy to think of friends and family as a source of easy money.


“They put in a small amount of money they’re prepared to lose so that you can get going,” Faure says.


“It’s easy to think of this as easy money… It comes without the demands of rational investment, and so gives you a bit of breathing space while you do the hard early yards in setting up.”


“Be very careful here. Experience strongly suggests that rational investors are much more likely to ask you the hard questions, and hold you accountable… than the sentimental ones.”


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