Briefly describe a small business you could envision yourself owning and discuss the most appropriate source of debt capital for that business. Explain your rationale.
The small business I envision to own is a cleaning company which basically cleans offices and homes. Often the hardest part of starting a business is raising the money to get going. I may have a great idea and clear idea of how to turn it into a successful business. However, if sufficient finance can’t be raised, it is unlikely that the business will get off the ground. I will therefore invest my personal cash balances into the start-up. This is a cheap form of finance and it is readily available. Investing my personal savings will maximize the control I keep over the business. It is also a strong signal of commitment to outside investors or providers of finance. I will raise money by Re-mortgaging. I will take out a second or larger mortgage on my second property which is a 3 bedroom single family home and then invest some or all of this money into the business. The use of mortgaging like this will provide me access to relatively low-cost finance; it allows me, the business owner, to retain control of my company. I am therefore entitled to all company profits and have ultimate decision-making authority, it also provides me with some financial freedom; my debt is limited to the loan repayment period. After I have repaid the borrowed money, my lender has no further claim on my business. Although I will have to make monthly payments on the loan and cash may be scarce and expenses may be higher than estimated during the early years of a new business I still prefer this kind of financing, again the risk is, if the business fails, then my property will be lost too, but I still think that it is better than the bank loan that does not provide much flexibility. From the e-Activity, discuss how you could best use an SBA loan to get your business running or expanding. Provide specific examples to support...
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