I suggest you think of it like this. You can get money one of three ways:
(1) Give up your own money. Either by investing your savings, or
"bootstrapping" the new business by using your ongoing cash flow (i.e.,
paycheck, or money from another business. You are taking on all the
risk, but that means you get all the rewards if your business is a success.
This can work if you have extra cash, a very low startup cost, or lots of
(2) Give up interest - by taking out a loan. May be credit cards or home
equity line of credit, in your name, or a line of credit, credit cards, or
small business loan, in the name of the business. They take on moderate
risk, because you pay them interest regardless of how the business is
doing, and you are still on the line if the business fails if you co-signed.
This works for relatively small amounts of money, like a few thousand to
a few tens of thousands of dollars.
(3) Give up ownership (equity) - by getting investors. You give investors
a share of ownership for them giving you money, which they are willing to
do because they hope to get a big return. They are taking on risk,
because if the business fails, they get nothing.
Typically they are investing hundreds of thousands (angel investors) or
millions (venture capital).
Hope that helps!
Elizabeth Potts Weinstein CFP JD
Elizabeth Potts Weinstein, CFP(r), JD
Website - http://www.TheWealthSpa.com
Blog - http://ElizabethPottsWeinstein.com
Movie - http://www.WhatAMotherIsWorth.com
fax (408) 705-2040
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