PART 1
Assume I come to you for advice because I wish to start a small business, let's say I wish to open a small ice cream stand like the one seen here (this is actually a Tastee Freez near Pittsburgh that I actually owned several years ago) and need financing. Let's say I'm looking to borrow between $150,000 to $200,000 to secure the franchise fee, the property and building, as well as other start up costs. I currently only have $40,000 in my IRA and would be reluctant to touch that, I do have other personal assets (including my home, valued at $125,000) and other personal wealth totally around $35,000. I anticipate being profitable rather quickly and hope to have revenue of $45,000 (net) in the first year alone. My credit rating is 'very good' and several family members (on both mine and my wife's sides of the family) have expressed both support for this business venture and some small interest in being a part of the business.
Choose one of these financing methods that you think would be the best option for me to finance this venture:
1.Obtain a Bank Loan (Debt Funding) for the full amount
2.Obtain an SBA (Small Business Administration ) Loan (Debt Funding)
3.Look for an 'Angel Investor' (Equity Funding)
4.Raise money from family and friends (Equity Funding)
5.Use most of my personal wealth and assets and borrow the rest from a bank (Self Financing + Debt)
Answer the following questions:
What type of financing is your 'best recommendation' for me to get the money I need to start this business and why?
What should be my major worries or concerns about using this type of financing?
If it were you starting a business, what type of information would be most important to you before deciding on what type of financing to use?
PART 2
Read a post by one of your peers and respond, making sure to extend the conversation by asking questions, offering rich ideas, or sharing personal connections.
Peer:
Kendra Banks
Hello everyone!
My recommendation for this scenario would be to use Self Financing + Debt. Obviously, investing and borrowing money comes with a lot of risks. It is possible that after you self finance a small business, it doesn't generate enough revenue, and you lose everything you invested. On the other hand, you would not have to worry about paying back a large business loan with money you did not have in the first place. If I were to start my own business, I would consider if it would be worth it to invest my personal wealth and assets. Is my business going to be profitable? How long is it going to take me to make back the money I have invested? If I do need to take out a loan, what will my interest rate look like, and how long do I have to pay it back?