Question

Choose any one type of a non-traditional source of financing and explain how it works. Venture growth equity OR venture debt.

Answer 1

Venture debt, also known as venture lending,is a variety of debt financing products offered to early and growth-stage venture capital backed companies. Provided by banks and dedicated venture debt funds, venture debt generally consists of a three to four-year term loan or equipment lease.

There are different kinds of non traditional sources of financing. Now we can discuss about second mortgage.

Second Mortgage - Second mortgage is a kind of non traditional financing where some entrepreneurs secure financing by taking out a second mortgage on their home.A second mortgage is a type of subordinate mortgage made while an original mortgage is still in effect. Apart from the first mortgage here they will take another mortgage also. These are much riskier and does provide someadvantages also. That are interest on the mortgage is tax deductible and is usually lower than what they would pay with a credit card or an unsecured loan. But if the business ultimately fails, this method of financing could result in the loss of your home. So we should be careful because business loss may leads to a risk in this method. Using a second mortgage as a vehicle for financing a company is very risky and is best for people who need money at a point of time.

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