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You have a great idea about a new business opportunity. You’ve run the numbers and are confident that with an initial investment of $500,000, you can turn a profit in three years and generate $150,000 in operating income per year. But you realize there are no guarantees. Further, you anticipate that there is at least a 50/50 chance the economy will enter a recession within the next two years.
What factors will be most important in determining if you want to fund your venture through equity or take a loan for the $500,000?
If you meet all your projections, will you be happier in five years that you used equity to fund the venture or debt? Why?
If the company goes bankrupt in five years, would you have a different answer? Why?