Are you trying to figure out the best way to finance your business? Faced with choices--how will you make the decision? Will it come down to math and spreadsheets--or other criteria?
Consider three short case studies.
A business owner has to choose between a $300,000 loan with the SBA at 6% that would be paid over ten years and require a lien on his house vs. an unsecured loan at 30% that would have to pay off over a year.
A second entrepreneur has to choose between giving up 30% equity in his company vs. getting very expensive purchase order financing that will eat up 2/3 of his margin over a year.
A third CEO picks between a fixed rate loan at 8 percent vs. a variable loan at 3.5%.
What would you do in each of these situations?
This is not a multiple choice test where the answer is right or wrong. The answer depends on your personal tolerance for risk. Financing decisions are often more emotional than rational.
My best advice is when you are looking for financing is to try to do your best to create two very different choices--and then struggle to choose between both of them.
The tension that the choice creates is healthy and will end up in a very personal choice.
Ultimately what an accountant financial planner or attorney advises you is important, but at the end of the day, the decision is yours. It will be based on your personal tolerance for risk and your confidence in your venture.
The numbers might tell you something very different from what will help you sleep better at night. Listen to advice and seek it. Create contrasts. Look at the numbers. Understand the differences. And then make the decision that feels best for you.