What it is
Money from relatives, friends or other people who know you: a loan you repay with or without interest, or an investment that buys a share of the business. It's how many new businesses start: 8% of employer firms got a loan from family or friends in 2025, and most firms that raised equity got some from them (Federal Reserve, 2026). The SEC describes these as the smallest rounds, around $10,000 to $50,000.
What it really costs per year
Whatever you agree. Many family loans charge little or nothing, but the IRS sets minimum rates each month (the Applicable Federal Rates): for November 2026, 4.67% for loans of three years or less, 5.08% up to nine years and 5.52% beyond. A loan charging less can count partly as a gift, and the lender may owe tax on interest they never received (loans of $10,000 or less between people are generally exempt). Talk to a tax professional before setting a rate below that.
Selling a share costs no interest but gives away part of the future profits and the say that comes with it, and it has to fit a securities-law exemption.
The cost that doesn't show in a rate is the relationship if the business struggles.
How fast the money comes
Days to weeks, as fast as the people involved can move.
Who qualifies
- Anyone with people willing and able to lend or invest, and a plan they believe in.
Where it breaks
- No written terms: put the amount, rate, payment schedule and what happens if the business fails in a signed note, or the shares in a proper agreement.
- Taking money someone can't afford to lose.
- Mixing a loan and an ownership stake without saying which it is, which causes disputes later and confuses any lender that looks at the books.
- Selling shares, even to family, is a securities offering: it has to fit an exemption, and the risks have to be disclosed.
Compare with
- Your own cash: yearly cost 0%, money in today.
- Community raises (Regulation Crowdfunding): yearly cost about 13–25%, money in 1–4 months.
- 0% crowdfunded microloans (Kiva): yearly cost 0%, money in 2–3 months.