FINANCING BASICS COURSE
LESSON 6
A BRIEF EVALUATION OF THE FORMS OF FINANCING AND HOW YOU FIND THE BEST FOR YOU
OF COURSE, THE BEST FORM OF FINANCING YOUR BUSINESS IS THE GRANT. IF YOU ARE ONE OF THE LUCKY ONES WHO GETS ONE, YOU MUST ONLY TAKE CARE THAT YOU USE THE MONEY FOR THE PURPOSE IT WAS GIVEN FOR.
MORE DIFFICULT IS THE DECISION BETWEEN THE OTHER TWO FORMS OF FINANCING. IF YOU ARE ONE OF THOSE BUSINESS WNERS WHO DON’T WANT OTHER PEOPLE TO GET INVOLVED IN YOUR BUSINESS, YU WILL SURELY BE MORE INCLINED TO CHOOSE DEBT FINANCING, AND TAKE A LOAN.
ON THE OTHER HAND, IF YOU ARE OF THE OPINION THAT TWO BRAINS ARE BETTER THAN NE, CHOOSE THE EQUITY FINANCING. IN THIS CASE, YOU MUST ONLY SEE TO IT THAT YOU GET AN ACTIVE INVESTOR WHO WANTS TO CONTRIBUTE TO THE SUCCESS OF YOU BUSINESS WITH HIS OR HER IDEAS. IF YOU GET A SO-CALLED “SILENT INVESTOR”, YOU WILL ONLY GET THE MNEY. THOSE KIND OF INVESTORS WILL PROBABLY CHOOSE A BUSINESS TO INVEST IN WHICH ALREADY HAS A CERTAIN DEGREE OF SUCCESS.
SUCH A “SILENT INVESTOR” WOULD ALSO BE AN ALTERNATIVE FOR THOSE BUSINESS OWNERS WHO OTHERWISE WOULD CHOOSE DEBT FINANCING. IN THIS CASE, YOU MUST BE AWARE THAT YOU ARE NOW RESPONSIBLE FOR TWO – OR MORE – PEOPLE WITH THE SUCCESS OF YOUR BUSINESS.
AND WITH THAT WE GET TO THE PERSONAL ASPECT OF YOUR FINANCING CHOICE: ARE YOU MORE SOMEONE WHO PREFERS TO WORK ALONE, OR ARE YOU SOMEONE WHO IS WILLING AND ABLE TO COOPERATE WITH OTHER PEOPLE FOR THE SUCCESS OF YOUR BUSINESS? YOUR DECISION MIGHT ALSO BE INFLUENCED BY THE SIZE OF YOUR BUSINESS AND YOUR PERSONAL AMBITIONS. THE BIGGER YOUR BUSINESS IS, AND THE FURTHER YOUR AMBITIONS ARE GOING, THE MORE YOU WILL NEED SOMEONE WITH WHOM YOU CAN SHARE THE RESPONSIBILITY FOR YOUR BUSINESS..
ON THE OTHER HAND, IF YOUR BUSINESS IS SMALL AND MIGHT NOT BE ABLE TO SUSTAIN THE FINANCIAL EXPECTATIONS (PROFIT!) OF TWO OR MORE PEOPLE, YOU MIGHT BE MORE INCLINED (OR EVEN FORCED ) TO TAKE A LOAN TO FIRST OF ALL TAKE YOUR BUSINESS TO A STAGE WHERE IT IS ABLE TO ATTRACT INVESTORS. IF YOU DECIDE TO TAKE A LOAN TO IMPROVE YOUR BUSINESS, YU MUST ONLY BE CAREFUL THAT YOUR MNTHLY NET INCOME IS ENOUGH TO PAY FOR THE PRINCIPAL AND INTEREST OF THE LOAN WITHOUT ANY PROBLEMS.
AND NOW THE QUESTIONS:
- WHAT IS THE EASIEST WAY OF FINANCING, AND WHY?
- WHEN SHOULD YOU CHOSE DEBT FINANCING?
- WHEN SHOULD YU CHOOSE EQUITY FINANCING?
- WHAT IS THE DIFFERENCE BETWEEN AN ACTIVE INVESTOR AND A SILENT INVESTOR?
- WHICH ARE THE PRINCIPLES ACCORDING TO WHICH YU SHOULD CHOOSE BETWEEN DEBT FINANCING AND EQUITY FINANCING?
