Week 8 reading reflection

Considering how little I know about financing, this reading helped a lot in my understanding. I learned that good finance management is important for a new venture. The two means of finance management are debt financing and equity financing. The first involves a payback of the funds, plus a fee for the use of the money, while the second one involves the sale of some of the ownership in the venture. In my point of view, the second method of financing is better, even if it means you relinquish some of the ownership to another company. If your venture is successful, everyone wins. If your venture fails, at least you don't have to worry about finding the money to pay back the people who loaned you the money. Of course, with equity financing you need to be careful not to give more than half of your business' rights to the other company, in order to keep control of my company. 

If someone, however, chooses to get loans from a bank, it is important to understand that one has to plan ahead. One has to consider why, how long, how much and when he will need to borrow the money. More importantly, one should know how he will you pay back the money. What if something unexpected happens? You have to have a plan B. Is there maybe another income that can make up for the money lost? You can't borrow money when you know you can't pay it back, which is true for any loan. That's why banks often require collateral.  

Social lending is another alternative solution that many start-up companies consider. Social lending uses Internet-based sites to pool money from investors willing to lend capital at agreed-upon rates. These loans can reach a maximum of $25,000, which gives the entrepreneur the opportunity to start their ventures at a low-risk cost. Social lending is also a great solution for entrepreneurs seeking quick capital without the administrative overhead of traditional lenders. Again, as with most things, entrepreneurs need to do their research to choose their lenders with caution, and to not take high risks. The disadvantages that need to be taken into account are that the entrepreneur's business plan is released to the public domain and that most loans are not completed because of the 10% funding success rate, which is considerably low. Finally, these are some things someone has to consider before lending money for the first time. 

I got a lot out of this reading. The one thing I would ask the writer would be, what would he have as a plan B in case he didn't have enough money to support his company. The terms unfortunately are very new for me so I had difficulty understanding some of the concepts.