BUSI 338 Week 5 Discussion Board Forum 3 Example

Discussion Board Forum 3: Obtaining the Right Financing

BUSI 338 Developing Entrepreneurial Opportunities, Discussion Board Forum 3 Thread and Replies

Thread by [Student Name]

The forum prompt and the classmates' ventures are composites; the textbook, research and Scripture cited are real.

Hill City Mobile Bike Works needs about $28,000 to open: $14,000 to fit out a leased van with shelving, a stand and power, $8,000 for tools, $3,000 for opening parts stock and $3,000 for licenses, insurance deposits and a website. I plan to cover $16,000 from savings and borrow $12,000 from a local bank, secured by the van's equipment.

Byrd and Megginson (2018) describe the two basic choices as equity, which trades a share of ownership for money, and debt, which must be repaid with interest. Equity from friends or investors would avoid payments, but it would give others a claim on a business I intend to keep small and run myself. Debt keeps control with the owner, and its cost is known in advance. Other sources the chapter lists fit poorly. A credit card would carry far higher interest, and a loan from relatives could strain relationships if the first season goes badly. Leasing the van rather than buying it already keeps the largest asset off the balance sheet.

The research suggests this mix is ordinary. Robb and Robinson (2014) followed a large sample of U.S. firms started in 2004 and found that outside debt, mostly bank loans and credit lines, was a much larger source of first-year funding than outside equity, and that many owners guaranteed those loans personally. The start-up stories that dominate the news, built on investors' money, describe a small minority of new firms. A small repair business looks like the majority. Banks lend against assets and cash flow, and the van's equipment gives the lender something to secure.

Scripture sets a limit on the loan. Proverbs describes a debtor as bound to the one who lent the money (English Standard Version Bible, 2001/2016, Proverbs 22:7). I read that as a warning not to borrow more than the business can repay in a bad season. At about 9 percent over four years, the loan costs roughly $300 a month, which the projected income from the slow winter months alone would cover. If the business struggles, the debt will not decide its future, and the loan can be paid off early once the first spring season is behind it.

Reply to Marissa

Marissa, funding the first print run of your board game through a crowdfunding campaign is a creative fit, because backers are also your first customers and early fans. You also explained clearly why a bank would hesitate to lend against unsold games, and your reward tiers were priced with shipping costs included, which many campaigns forget.

Across thousands of funded campaigns, Mollick (2014) found that most successful projects shipped late, and that campaigns signaling careful preparation, with a pitch video and regular news for backers, reached their targets more often. That suggests your campaign page could show a finished prototype and a realistic delivery date, and that a short video of people playing the game would be worth the effort. Building a few weeks of slack into the promised date might also protect the trust that backers give a first-time creator. How will you handle backers if the printer misses your shipping date?

Reply to Andre

Andre, your plan to lease the bakery's two ovens instead of buying them outright is wise, since it keeps cash free for the slow first months, and your monthly figures were easy to follow.

I wonder whether a bank might be more willing to lend than you expect. In a study of small firms' early financing, Cassar (2004) found that firms with more tangible assets used more debt, including long-term bank loans, likely because those assets could secure the loan. Commercial ovens are the kind of asset a lender can value and resell, which lowers the bank's risk and often the interest rate. A lease is also debt in practice, since the payments are fixed whether or not the bakery sells bread. Before signing, have you compared the total cost of the lease with a five-year equipment loan, including what each option leaves you owning at the end of the term?

References

Byrd, M. J., & Megginson, L. C. (2018). Small business management: An entrepreneur's guidebook (8th ed.). McGraw-Hill Education.

Cassar, G. (2004). The financing of business start-ups. Journal of Business Venturing, 19(2), 261-283. https://doi.org/10.1016/S0883-9026(03)00029-6

English Standard Version Bible. (2016). Crossway. (Original work published 2001)

Mollick, E. (2014). The dynamics of crowdfunding: An exploratory study. Journal of Business Venturing, 29(1), 1-16. https://doi.org/10.1016/j.jbusvent.2013.06.005

Robb, A. M., & Robinson, D. T. (2014). The capital structure decisions of new firms. The Review of Financial Studies, 27(1), 153-179. https://doi.org/10.1093/rfs/hhs072