Question 7 Personal savings
The amount required to start up the business will highly determine the source. In Mr. Toddlers’ case, the capital required is $10 million, he can opt for owner financing or other people’s money depending on his savings.
Personal savings
Mr. Toddler has the option of funding the business from his own savings, which will depend on the amount of savings he has, and the amount he is willing to risk.
Advantages
It is the most convenient and secure way of funding the business.
There are no strings attached, such as meeting strangers to convince them and interest to be paid.
Disadvantages
The owner may lack the capital required.
It puts your money into risk, as you can lose all your savings.
Debt financing
Mr. Toddler can opt for a bank loan to cater for the starting capital.
Advantages
It is an easy way of obtaining starting capital
The lender will have no control over your business.
Interest paid on loan is not taxed.
Disadvantages
The borrower must provide collateral for the loan.
It is costly since he will have to repay the principal amount and interest.
Family and friends
Mr. Toddler can borrow from family and friends, depending on whether they can afford the amount.
Advantages
Family and friends will be more willing to help as they trust you and are easy to convince compared to strangers.
It is fast access to capital.
Disadvantages
The risk of losing their money is high, which in turn may end up affecting your relationship with them.
Angel investors
The networks that Mr. Toddler has with executives and business owners who have the ability and means to fund viable deals like his can land him into this kind of financing.
Advantages
Angels investors have the financial capability.
These investors are capable of funding the whole business in one fell swoop enabling faster kick-off of the company.
Disadvantages
It requires networking. Finding angels investors requires a lot of effort.
These investors will have control over the business, as their say is substantial.
- Toddler should choose debt financing since rewards outweigh the risks involved.
The success of any business depends on the ability to acquire the required resources. Selecting the wrong source of funds can lead to several consequences, such as a waste of resources, a shift of control, and even business failure. Entrepreneurs should study the pros and cons of each source of financing and come up with the ideal source, which will propel the achievement of business goals.