Funding for your business has come from your rich relative

Currently, your only funding for your business has come from your rich relative. What are the risks involved in this funding situation? If you didn't have a rich relative upon whom to rely for start-up funding, you could have pursued any of the following options:
• Bank loans
• Small Business Administration (SBA) programs (www.sba.gov)
• Venture capitalists
• Stock issuance
• Bond sales
• (List any/all others)
Select any two of the listed options, explain them, and identify the risks involved with them. Research these options using the Cybrary or other Internet resources.








Solution:

Answer: The risks involved in funding received from my rich relative would be that if the business failed and I have no way to repay her.   As well, sometimes, money and family don't mix.  If I am on a repayment schedule, and I miss one payment, perhaps my relative would get mad or start to worry that their investment is not safe.  Words flow easier between relatives rather then between me and the Bank.  As well, other family members might get mad that the relative supported my business, and this could cause potential family rifts.

Answer: The risk involved in this funding would be if the business fails, my relative could potentially not talk to me anymore or even worse, I could be taken to court.  Also, if the business does extremely well my relative may want sole possession of the company. She may attempt to "buy me out" and take ownership of it. She may feel as thought her money alone is the only reason why my business is successful. I would try to explain to her that if the business had failed I would still be responsible for repaying her and would make every effort to do so. Investing in my business or any other does not guarantee a return; as with any investment an assumed risk must be understood.

Answer: If I didn't have a rich relative I would have chosen to get a Bank loan and Venture capitalists.  The bank loan application consists of a credit check and a letter in reference.  Venture Capitalists is where you find someone to who is willing to take a risk in investing in your business for a return of the profits - i.e. they fund your business, but then they get a large stake in the profits. I can also check with the providers of my current 401K plan and find out if it is possible to borrow against my money. The may offer a low interest loan for starting a small business, this will definitely be a great benefit to me and others if my plan allows this.