Question

Suppose that you are starting an internet-based program. You want to raise $750,000 to expand your business operations. Describe how you could raise these funds directly through each of the follow options: issuing stock, issuing bonds, or obtaining a bank loan. Compare and contrast these three options.

Answer 1

1. Issuing Stock. You can issue 75,000 shares of face value $10 to raise 750,000 from equity issue assuming no flotation costs. However finding equity investors for your start up business may be extremely difficult since there is no history of your performance

2. Issuing bonds. You can issue bonds for the 750,000. However since your is just starting, it would be D rated bonds in default category and hence the interest rate you have to issue on these bonds will be very high of the range of 15 -20% per year. Again it would be hard to find investors who you invest in your bonds.

3. Bank loan. The banks also would not issue loans to start up businesses and they want some history of your credit repayment. May be you can take a personal loan and use it starting a business. This would be the most feasible thing to do out of the three option

Alternatively, I would suggest you to approach angel investors who fund start ups having sustainable business plan.