Peter decides to open a large store that sells organic farm products, but he is unsure about how to obtain the funding he needs to get started. He calculates the start-up funding that he will need as $50,000. What type of funding would be appropriate for this type of business? What are the advantages and disadvantages of this type of funding?

Question

What will be an ideal response?

Answer 1

Answers will vary. Peter can get funding from personal resources. Most new firms typically tap personal resources such as family, friends, and credit cards. According to Consumer Reports, 68 percent of total start-up financing comes from personal resources. If individuals do borrow from family or friends, virtually every small business expert recommends that they keep the relationship as professional as possible. If the business fails, a professional agreement can preserve personal ties. And if the business succeeds, they will need top-quality documentation of financing from family and friends to get larger-scale backing from outside sources.Peter can get a credit card from his banker. A personal credit card can be especially handy-though highly risky-financing resource. In fact, a recent survey found that nearly half of all start-ups are funded with plastic. Credit cards do provide fast, flexible money, but if individuals do not pay their card companies fast, they will find themselves socked with financing fees that can take years to pay off.