Question

Suppose you need $1 million dollars to start your Dream Business. Research ways to get the money for such a business. Compare two (2) sources of financing you might obtain. (e.g., Small Business Administration (SBA), private investors, private loans, personal assets, and / or personal credit cards.) Identify the risks and benefits of your two (2) choices.

Answer 1

Two sources of finance for the business are:

1. Private investors-

Benefits:

(i) Private investors usually are flush with cash and will readily invest in the business if they like the idea.

(ii) They bring their experience and knowledge to the business.

Risks:

(i) The investor nay demand higher profits if the firm does well.

(ii) Also, the control of the business is not totally with the owner.

2. Personal Assets-

Benefits:

(i) Onwership control

(ii) Helps in curbing unnecessary expenditure since usually the funds are limited

Risks:

(i) If the company suffers a loss, all the money is gone including personal possessions.

(ii) Also, having a private investor may bring expertise and experience for a new business.