Pros and Cons of Financing Alternatives
Funding Source Pluses and Minuses
– Friends and relatives Usually the cheapest of all capital sources but greater risk of alienating people if venture fails.
– Business angels More expensive than bank loans, plus chance of investor interference.
– Bank loans Cheaper than capital from professional investors but collateral and immediate payments required.
– Credit cards More expensive than conventional bank loans and fast repayment required.
– Corporate partners Cheaper than venture capital and professional investors but more expensive than bank loans and long-term commitment from partners often lacking.
– IPO Typically among the cheapest sources of capital compared with venture funds, but opens the company up to more investor scrutiny and requires company valuation of $5 million or more.
Source: Investment bankers and venture capitalists