2. Alice is opening a cupcake store in Old Town Alexandria. After a careful analysis, she determines she will need $100,000.00 in start-up capital to get her through the first two years of operation. She has the opportunity to borrow the sum from banks and friends at a market interest rate and also has the opportunity to sell shares in her company to investors. After reading the material in Chapter 10, provide a memo to Alice as to what she should do in this situation. Be specific and explain your recommendation to her.
Kiva Profounder Microfundo Kickstarter Rockethub Cat Walk Genius IndieGoGo Grow VC Small business Music Creative projects Creative arts Fashion Creative art Mobile & Web 2.0 icrofundo.org kickstarter.com sockethub.com catwalkgenius.com Ww.indiegogo.com www.grow .com Any Credit Any Traditional Loan Line Note: Owner loans for corp Source: U.S. Small Busines of Small Business Finance Exhibit 10-2 Debt Financing Many businesses have some combination of debt and equity financing variety of loans and investments is quite large and growing. One challen you may face is determining what type of debt financing to pursue he on your business type and life-cycle stage, your personal finances, wealth preferences, and the options available to you. Before pursuing debt for you business, calculate your personal net worth by tallying your assets (i.e., cash investment accounts, personal property, real estate, and intangibles) and suh tracting your debts (i.e., credit card balances, vehicle loans, student loans mortgages, and other loans). Your lenders will want to know what you own! what you owe, and what your business finances are. The percentage of small firms using credit by credit type is shown in Exhibit 10-1. Debt financing comes in many forms, with widely varying repayment and qualification terms. Different types of lenders will have various rates and fees, so it is worthwhile to compare the total package costs. Some debt options are discussed in Exhibit 10-2. Debt Category Commercial Loa Personal Loans Debt Financing: Pros and Cons To finance through debt, the entrepreneur applies to and contract a person or an institution that has money, and borrows it, siga promissory note, a document agreeing to repay a certain sum of (with interest) by a specified date. Cintorart rate) of the loan p Leases a certain sum of money sedam lance Cat Walk Gens IndieGoGo Grow VC Fincin 10-2 Selected Sowes Debt Financing Many businesses have some combination of co f inancin Vanely of loans and investments is quite lanea n . One chahe you may face is determining what type of debt financing to purse on your business type and life-cycle stage. Your pronal finances preferences, and the options available to you r pursuing debt for cuisiness, calculate your personal met worth by talling your assets Investment accounts, personal property, real estate, and intangibles tracting your delts (ie, credit card balances, vehicle loans, student mortgages, and other loans). Your lenders will want to know what what you owe, and what your business Finances are. The percentage warms using credit by credit type is shown in Exhibit 10-1 Debt financing comes in many forms, with widely varying Tea and qualification terms. Different types of landen and fees, so it is worthwhile to compare the total package costs. Some de have various options are discussed in Exhibit 10-2. Der Camper Loans Business loans typically provided by a bank or other financial Personal Loans Description Common Types Up to 20 years Equipment and Up to 7 years improvements institution Working capital 1 year or less Asset based Depends on the type Accounts receivable Olen 30 days factoring Credit cards Revolving Loans taken out on your personal Home equity loans credit and used for the business Variable terms, some Title los May have a fixed term length Short-term, foedre or "revolving torm. Payday loan Short-term foredre Vehicle lesse Often for 2 or 3 year Debts incurred for the nights option at the end o to use specific property, such as utomobiles, trucks, or equipment Equipment leases Varies widely depe of equipment leas Long-term debt instruments used by See Bonds section later corporations to raise large sums of in the chapter money cons Bonds fora Debt Financing: Pros and Cons To finance through debt, the entrepreneur applies to and contracts with person or an institution that has money and bow l , sining a missory note, a document agreeing to repay a certain sum of money (with interest) by a specified date Interest is determined as a percentage interest rate of the loan prin spal The principal is the amount of the loan or outstanding balance the loan amount, not including interest. It $120,000 is borrowed at 10 percent to be paid back over one year, the interest on the loan is $12.000 (5120,000 X 0.10). Typically, the borrower makes monthly payments until The loan is fully paid. The term, or length, of the loan generally depends on what is being financed, with working capital having the shortest ferm and real estate the longest. The lender essentially has no say in the operations of the business long as the loan payments are made on time and loan terms are met lender will have a say in how the funds are initially disbursed to a schedule that you provide) and may set restrictions peu covenants). The payments are predictable, although they may of debt and changes in key interest-rate measures, if the interest rate is variable rather than fixed. If the loan payments are not made in a timely way, the lender can force the business into liquidation or bankruptcy, even if that loan wance is only a fraction of what the business is worth. Also, the lender make the home and personal possessions of the owner, depending on ne agreement. Kiva Profounder Microfundo Kickstarter Rockethub Cat Walk Genius IndieGoGo Grow VC Small business Music Creative projects Creative arts Fashion Creative art Mobile & Web 2.0 icrofundo.org kickstarter.com sockethub.com catwalkgenius.com Ww.indiegogo.com www.grow .com Any Credit Any Traditional Loan Line Note: Owner loans for corp Source: U.S. Small Busines of Small Business Finance Exhibit 10-2 Debt Financing Many businesses have some combination of debt and equity financing variety of loans and investments is quite large and growing. One challen you may face is determining what type of debt financing to pursue he on your business type and life-cycle stage, your personal finances, wealth preferences, and the options available to you. Before pursuing debt for you business, calculate your personal net worth by tallying your assets (i.e., cash investment accounts, personal property, real estate, and intangibles) and suh tracting your debts (i.e., credit card balances, vehicle loans, student loans mortgages, and other loans). Your lenders will want to know what you own! what you owe, and what your business finances are. The percentage of small firms using credit by credit type is shown in Exhibit 10-1. Debt financing comes in many forms, with widely varying repayment and qualification terms. Different types of lenders will have various rates and fees, so it is worthwhile to compare the total package costs. Some debt options are discussed in Exhibit 10-2. Debt Category Commercial Loa Personal Loans Debt Financing: Pros and Cons To finance through debt, the entrepreneur applies to and contract a person or an institution that has money, and borrows it, siga promissory note, a document agreeing to repay a certain sum of (with interest) by a specified date. Cintorart rate) of the loan p Leases a certain sum of money sedam lance Cat Walk Gens IndieGoGo Grow VC Fincin 10-2 Selected Sowes Debt Financing Many businesses have some combination of co f inancin Vanely of loans and investments is quite lanea n . One chahe you may face is determining what type of debt financing to purse on your business type and life-cycle stage. Your pronal finances preferences, and the options available to you r pursuing debt for cuisiness, calculate your personal met worth by talling your assets Investment accounts, personal property, real estate, and intangibles tracting your delts (ie, credit card balances, vehicle loans, student mortgages, and other loans). Your lenders will want to know what what you owe, and what your business Finances are. The percentage warms using credit by credit type is shown in Exhibit 10-1 Debt financing comes in many forms, with widely varying Tea and qualification terms. Different types of landen and fees, so it is worthwhile to compare the total package costs. Some de have various options are discussed in Exhibit 10-2. Der Camper Loans Business loans typically provided by a bank or other financial Personal Loans Description Common Types Up to 20 years Equipment and Up to 7 years improvements institution Working capital 1 year or less Asset based Depends on the type Accounts receivable Olen 30 days factoring Credit cards Revolving Loans taken out on your personal Home equity loans credit and used for the business Variable terms, some Title los May have a fixed term length Short-term, foedre or "revolving torm. Payday loan Short-term foredre Vehicle lesse Often for 2 or 3 year Debts incurred for the nights option at the end o to use specific property, such as utomobiles, trucks, or equipment Equipment leases Varies widely depe of equipment leas Long-term debt instruments used by See Bonds section later corporations to raise large sums of in the chapter money cons Bonds fora Debt Financing: Pros and Cons To finance through debt, the entrepreneur applies to and contracts with person or an institution that has money and bow l , sining a missory note, a document agreeing to repay a certain sum of money (with interest) by a specified date Interest is determined as a percentage interest rate of the loan prin spal The principal is the amount of the loan or outstanding balance the loan amount, not including interest. It $120,000 is borrowed at 10 percent to be paid back over one year, the interest on the loan is $12.000 (5120,000 X 0.10). Typically, the borrower makes monthly payments until The loan is fully paid. The term, or length, of the loan generally depends on what is being financed, with working capital having the shortest ferm and real estate the longest. The lender essentially has no say in the operations of the business long as the loan payments are made on time and loan terms are met lender will have a say in how the funds are initially disbursed to a schedule that you provide) and may set restrictions peu covenants). The payments are predictable, although they may of debt and changes in key interest-rate measures, if the interest rate is variable rather than fixed. If the loan payments are not made in a timely way, the lender can force the business into liquidation or bankruptcy, even if that loan wance is only a fraction of what the business is worth. Also, the lender make the home and personal possessions of the owner, depending on ne agreement
