Money may be tight, but an entrepreneur with a viable business plan and a lot of energy can always go to the informal venture capital network.

That's a fancy way of saying it's possible to borrow from rich—or not so rich—relatives and friends.

Prospective small-business owners who go to their personal network for financing are tapping into a huge source of start-up capital. The Small Business Administration estimates that the informal venture capital network is putting out $50 billion to $60 billion a year for business start-ups, said lawyer Allen Neece of the Washington-based small-business lobbying firm Neece, Cator and Associates.

That's a massive infusion of money," Neece said. "This is not a fixed pool of capital with professional investors. These are people who are writing a check out of their own pocket."

Here, condensed from interviews with local financial experts, are guidelines for getting business loans from family and friends:

• Offer an incentive to business-savvy relatives. "You are looking for people affluent enough and willing to invest in a young start-up company instead of, say, fisted securities in the stock market," Neece said.
  
  He suggests offering them a chance to buy a piece of the proposed company—an equity investment to build up your cash reserves to launch the business. "These people are then holding security in your company," Neece said, "with the hope of growth for the future, when they can sell at a profit."
  
  Because the investor is in effect buying stock in the new company, there usually is no agreement to ever repay such a loan. Equity investment works especially well for small businesses in the fields of technology, bio-technology, medical products, printing and support services.
  
  
• Prepare a business plan. "You need to give your family what you would give to a financial institution," said Penni Owens, manager of small-business development for Montgomery County. "They need to feel confident in you. If you operate professionally, you are better respected."
  
  A thorough business plan includes a discussion of your market. Talk candidly about the competition, proposed location, management of the company, any employees necessary now or in the future, and how you intend to pay back the loan.
  
  
• Get an accountant to work out the financial section of the business plan. An accountant will explain and help you work up a balance sheet, do a break-even analysis to determine the point where you switch from red to black ink, develop profit-and-loss statements and develop a pro forma statement to project the company's performance.
  
  
• Get some legal and professional guidance. Neece recommends a visit to any of the area's Small Business Development Centers for free counseling on financing a small business.
  
  The temptation may be strong to close the loan with nothing more formal than a handshake and a slap on the back, but "you can run into all kinds of problems that way," Neece said.
  
  "Everyone just comes in on [an] equal footing if you see an attorney," he said. "There are too many federal and state rules and regulations. I don't care if you are a hairdresser or a physicist, you have got to have somebody who keeps you out of trouble."
  
  
• Be clear on the terms of the agreement. "Get everything out on the table, so there are no surprises and misunderstandings, no hurt feelings down the road," said David Gage, a District clinical psychologist who mediates conflicts in small-business matters.
  
  Gage recommends that you start out with the premise that the more emotional issues there are between two people, the greater the chance that something will go awry with the loan deal.
  
  "If the relationship is not stable enough, it will not tolerate one more level of complexity that a loan would bring to it," he said.