Question

Explain the advantages and disadvantages of each source of finance that would not be relevant to your business and explain why you would not use them for your business​

Answer 1

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Your personal finances, and the finances of your business partners, are one source of funding. These include not only ready cash on hand in savings and checking accounts, but less liquid finances, such as stock holdings or retirement accounts. Personal financing is often known as bootstrapping and like all sources of financing, bootstrapping has its pros and cons.

On the positive side, using your own cash means there are no strings attached: no interest accruing, no repayment schedule, no traveling from meeting to meeting trying to convince strangers to hand over some cash to finance your business. Personal finance is the fastest and easiest way to secure funding.

Conversely, using your own money as a major investment in your business means putting your personal finances at risk. You could lose your savings entirely and, if you've dipped into your retirement account, you may be putting your future plans at risk, as well. Of course, the same holds true for your business partners.

Bootstrapping can also mean asking those close to you, your family and friends, for financial assistance. It's not unusual, for example, for a parent to offer funding to help start up a business venture for their child. These sources also have the advantage of fast access to funds, which might be given as a gift or as a loan. But there is also the risk of jeopardizing a personal relationship should the business fail and close relatives feel that their money was ill-used.