Bill Jackson wants to start a home remodeling business and is trying to decide whether to "bootstrap" the financing or try a local bank. He needs about $50,000 for start-up expenses. Bill has worked for a local home-builder for years. He doesn't have much money saved, but he does own his home. .
a. How would a bank evaluate Bill's loan request?.
b. What should Bill do? Why? (explain the reasoning for your answer.).
Response .
Money is inevitable and is the sustenance of any business whether one is starting a new business or managing an existing one. Securing financing (money) is a major factor, especially to start up new businesses. For Bill Jackson to successfully start his home remodeling business money is ultimately needed. Home improvement or remodeling as a practice of making addition or improving on one's home require, aside from skills, money to buy materials and hardware for any improvement projects, usually procure at home improvement stores. The options "bootstrap" and local bank financing available for Bill Jackson is explained below. .
Bootstrap Financing.
This relies on entrepreneurs ability to use own money to get business off the ground and meet operational needs or expanding existing business. This implies building business out of little or nothing with no or minimal outside capital and this tend to reduce possible interest to be paid on financing amount.
Types of Bootstrap Financing:.
1. Leasing - This is achievable by free up cash by leasing equipment rather than outright purchase. It a way of holding on to funds instead of spending too much on frivolity.
2. Trade Credit - Looking up for manufacturer or supplier that accept trade credit purchase and business owner to order goods on agreed terms and condition. The good thing here is that there are possibility of cash inflow before repayment due date without no initial cash involvement.
3. Customers/Client - An issued letter of credit from customers to acquire materials from supplier or manufacturer.