Assume I come to you for advice because I wish to start a small business, let’s say I wish to open a small ice cream stand like the one seen here (this is actually a Tastee Freez near Pittsburgh that I actually owned several years ago) and need financing. Let’s say I’m looking to borrow between $150,000 to $200,000 to secure the franchise fee, the property and building, as well as other start up costs. I currently only have $40,000 in my IRA and would be reluctant to touch that, I do have other personal assets (including my home, valued at $125,000) and other personal wealth totally around $35,000. I anticipate being profitable rather quickly and hope to have revenue of $45,000 (net) in the first year alone. My credit rating is ‘very good’ and several family members (on both mine and my wife’s sides of the family) have expressed both support for this business venture and some small interest in being a part of the business.
Choose one of these financing methods that you think would be the best option for me to finance this venture:
- Obtain a Bank Loan (Debt Funding) for the full amount
- Obtain an SBA (Small Business Administration ) Loan (Debt Funding)
- Look for an ‘Angel Investor’ (Equity Funding)
- Raise money from family and friends (Equity Funding)
- Use most of my personal wealth and assets and borrow the rest from a bank (Self Financing + Debt)
To help me out, you review this article from Inc. Magazine ‘ Ten Ways to Finance Your Business‘ (Click here to review the article) then answer the following questions:
- What type of financing is your ‘best recommendation’ for me to get the money I need to start this business and why?
- What should be my major worries or concerns about using this type of financing?
- If it were you starting a business, what type of information would be most important to you before deciding on what type of financing to use?