Stage 7 - financing your business

Question 1

What are the Advantages of Debt Financing

Answer 1

1) It’s useful for meeting a short-term deficit in cash flow.
2) You do not have to give up or share control of your business.
3) It may be acquired from a variety of lenders. You can shop around.
4) The information needed to obtain a loan is generally straightforward and normally incorporated into a business plan.
5) Interest paid is tax-deductible.

Question 2

What are the disadvantages of Debt Financing

Answer 2

1) Difficult to obtain when the project is risky
2) Debt can be a burden on cash flow
3) It may be difficult for the business to repay the loan
4) The lender may require you to provide a personal guarantee for the loan

Question 3

Advantages of Equity Financing

Answer 3

1) An appropriate investor can contribute expertise, contacts, and new business as well as money.
2) Equity may be the only way to fund high-risk ventures, where the cost of debt could be prohibitive.
3) It can be used to fund larger projects with longer time frames.

Question 4

Disadvantages of Equity Financing

Answer 4

1) Owner has to give up some ownership and control of the business.
2) There is always the danger of incompatibility and disagreement among the investors.
3) It is much more difficult to terminate the relationship if disagreements occur.

Question 5

What are common Bootstrapping techniques

Answer 5

1) Personal credit cards
2) Suppliers’ inventory buying plans
3) Leasing versus buying
4) Leasehold improvements
5) An advance payment from customers

Question 6

Name different options to raise money

Answer 6

1) Venture capital
2) Bank loan
3) Crowdfunding
4) Angel investors
5) Government financial assistance program