Business Financing and the Capital Structure Essay - 6

Business Financing and the Capital Structure - Essay useRaising finance through friends and family members is the least expensive way to access funds since it avoids high following loans. Friends and family members are more patient than conducters, such as banks.The major disadvantage is that the owners mustiness give show up approximately 50% of their air to the outsiders. This puts the venture in danger of losing their business fully. Some of them may everywhere expect the amount of profits. This brings misunderstandings because they expect more than can be afforded.Investments from family and friends require a good accounting about the impact of the venture. The financial arrangements should all be business-like. Formal business processes should be followed regardless of the birth between the lender and the borrower. The details of the borrowed money should be outlined. This involves the means of payment, and what would happen in case the business does not prosper (Wolff, 2000). The borrower should not accept more money than the investor could afford to lose. It may render the connection bankrupt. Finally, a written contract should be availed for the business owner, friends, and family. The business should treat the money as bridge circuit financing to the next financing level (Boa and Edmans, 2007). Any payment schedule developed should suit the entrepreneur and the lender. An exit plan should be available describing how the investors will cash out the investments.Debt cracking is loan obtained that must be returned with interest. Debt capital form of financing has higher interest rate than loans given to small companies since they wee-wee higher risks of return trade off than bigger corporate consumers do. The entrepreneurs maintain complete ownership of the business. Borrowed capital is a liability on the balance sheet.The major advantage of debt financing is that the lender cannot own the business. Those who lend capital only require interes t on the loan given. Debt financing cost