The expansion or growth of a business venture requires money; therefore, if the owners of the business do not have either the personal or the business funds to accomplish this task, the question becomes how monetary procurement will occur. There exist three primary methods for an entrepreneur to acquire the necessary funds for an enterprise such as establishing two additional restaurants at new locations, and that is the issuing of either stocks or bonds , as well as, borrowing funds from traditional financial institutions. In order to procure the necessary funding that a new business venture requires, one must evaluate whether to borrow the funds or whether to sell a portion of the business interest or ownership to potential equity investors
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By definition according to Investopedia (2003), a stock, also preferred to as equity or shares, is a form of security that connotes ownership in a company and signifies an entitlement to a portion of the company 's assets and earnings. There are two chief forms of stock, which are common and preferred. Ownership of common stock signifies the individual possesses two rights, which are the voting privilege at the meetings for shareholders, as well as, the right to collect dividends. Whereas, preferred stock owners have no voting privileges, nevertheless, the owners of such stock have a greater right to dividend earnings, as well as, to the assets than one possessing the common shares (Terzo, n.d.). Secondly, the type of corporation is a factor related to the class of shares one offers, such as S-corporation only can issue common stock, while C-corporations issue both common and preferred shares. Lastly, one must consider stock acquisition from the viewpoint of the seller, as well as, the buyer. According to ConnectUs (2015), as an investor in common stock one assumes far more risk than those invested in either preferred stock or bonds because repayment in terms of crisis, such as bankruptcy, occurs after all others receive their returns on investment …show more content…
However, borrowing money from a financial institution in the form of a loan still presents both positive and negative aspects for the entrepreneur. On the positive end of the spectrum, the chief benefit of a loan from a financial institution is the ability to obtain a large sum of money in an expedient period of time for the land, the building, the construction, as well as, the operation expenses one incurs. Additionally, these institutions have the ability to lend greater sums of money than do friends or family members. However, unlike, family or friends, banks and credit unions affix interest rates to the loans; furthermore, these rates are indicative of the borrower’s credit worthiness, the extent of their collateral, as well as the economic environment of the time. In addition to these positive aspects, the greatest advantage remains that the bank does not assume any form of influence over the use of the loan, so one retains absolute control over the money and the business, as well as, the operations (Ray, n.d.). Consequently, the negative element is the borrower assumes complete responsibility for the loan repayment, thus, the failure to disburse the loan payments or pay-off the loan in a timely often results in lawsuits or the bank foreclosures on the business (Montoya, n.d.). Furthermore, other negative aspects include the variability,
By definition according to Investopedia (2003), a stock, also preferred to as equity or shares, is a form of security that connotes ownership in a company and signifies an entitlement to a portion of the company 's assets and earnings. There are two chief forms of stock, which are common and preferred. Ownership of common stock signifies the individual possesses two rights, which are the voting privilege at the meetings for shareholders, as well as, the right to collect dividends. Whereas, preferred stock owners have no voting privileges, nevertheless, the owners of such stock have a greater right to dividend earnings, as well as, to the assets than one possessing the common shares (Terzo, n.d.). Secondly, the type of corporation is a factor related to the class of shares one offers, such as S-corporation only can issue common stock, while C-corporations issue both common and preferred shares. Lastly, one must consider stock acquisition from the viewpoint of the seller, as well as, the buyer. According to ConnectUs (2015), as an investor in common stock one assumes far more risk than those invested in either preferred stock or bonds because repayment in terms of crisis, such as bankruptcy, occurs after all others receive their returns on investment …show more content…
However, borrowing money from a financial institution in the form of a loan still presents both positive and negative aspects for the entrepreneur. On the positive end of the spectrum, the chief benefit of a loan from a financial institution is the ability to obtain a large sum of money in an expedient period of time for the land, the building, the construction, as well as, the operation expenses one incurs. Additionally, these institutions have the ability to lend greater sums of money than do friends or family members. However, unlike, family or friends, banks and credit unions affix interest rates to the loans; furthermore, these rates are indicative of the borrower’s credit worthiness, the extent of their collateral, as well as the economic environment of the time. In addition to these positive aspects, the greatest advantage remains that the bank does not assume any form of influence over the use of the loan, so one retains absolute control over the money and the business, as well as, the operations (Ray, n.d.). Consequently, the negative element is the borrower assumes complete responsibility for the loan repayment, thus, the failure to disburse the loan payments or pay-off the loan in a timely often results in lawsuits or the bank foreclosures on the business (Montoya, n.d.). Furthermore, other negative aspects include the variability,