Financial Analysis: Financial Sources
The source of funding
for a startup business can be accompanied by a multiplicity of complications.
Sources can include personal capital, which is what most entrepreneurs favor.
Personal capital investments can reduce potential risks for investors and
banks, however it can also create a heavy burden on a sole proprietor should
the business experience any financial difficulties. Accepting a loan from a
family member in this scenario, offers a lower interest rate than the bank as
well as low monthly payments. On the contrary, borrowing from a family member
often lacks the proper contractual terms resulting in tension due to
misunderstandings and/or assumptions. "Any time you take money into a
business, the law is very explicit: You must have all agreements written down
and documented… emotional and legal difficulties could result that end up in
court” (entrepreneur.com, 2016). Accepting the loan from the bank offers with
an increased amount of money and would be convenient, because banks have
established contracts for loans that include terms of the agreement, providing
their contractual obligations as well as other legalities.
The additional capital for the burrito shop will be sourced
from the bank’s line of credit. Although the interest rate may be higher, due
to a larger sum being borrowed, a piece of mind is priceless. Borrowing any
amount of money from a family member often leads to dissolution of that
relationship. Although borrowing from an uncle, allows for negotiations of
potentially lowering monthly payments, a bank can offer that same feature as
long as the loan is in good standing over a period of time. Also, by borrowing
from the bank credit is established for that business. Most banks are federally
funded therefor transactions such as loans can be reported to the credit
bureau. With that, an entrepreneur should only borrow funds with a concrete
repayment plan. According to businessblogshub.com (2015) “… bank loans are
generally sanctioned against some collateral, often the entrepreneur’s house
and property. This stands the risk of being lost to the bank should the
business fail to take off.” Yet, as long as the loan is not defaulted on, good
credit can be established. Making the loan process easier for additional future
loans, if needed. Maintaining strong family & friend bonds because no
monetary issues exist.
References
Businessblogshub.com
(2015). Advantages and disadvantages of taking small business loans
from banks retrieved from http://www.businessblogshub.com/2010/10/advantages-and
-disadvantages-of-taking-small-business-loans-from-banks/
Entrepreneur.com (2016).
How to keep family and friends loans strictly business retrieved from
https://www.entrepreneur.com/article/24380
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