Homework SourseJake Blake is an entrepreneur and owner of Wood Creations a
Jake Blake is an entrepreneur and owner of Wood Creations a sole proprietorship. The business which manufacturers tables chairs cabinets and other furniture is growing and Jeff is exploring the idea of purchasing a brand new manufacturing facility. Because he does not have the money to do so he believes his options are to borrow the money or to convert the business to a corporation and sell stock.
Describe the which option you believe Jeff should pursue. Make sure to explain the advantages and disadvantages of the course of action that you choose.
Jake Blake is an entrepreneur and owner of Wood Creations a sole proprietorship. The business which manufacturers tables chairs cabinets and other furniture is growing and Jeff is exploring the idea of purchasing a brand new manufacturing facility. Because he does not have the money to do so he believes his options are to borrow the money or to convert the business to a corporation and sell stock.
Describe the which option you believe Jeff should pursue. Make sure to explain the advantages and disadvantages of the course of action that you choose.
Jake Blake is an entrepreneur and owner of Wood Creations a sole proprietorship. The business which manufacturers tables chairs cabinets and other furniture is growing and Jeff is exploring the idea of purchasing a brand new manufacturing facility. Because he does not have the money to do so he believes his options are to borrow the money or to convert the business to a corporation and sell stock.
Describe the which option you believe Jeff should pursue. Make sure to explain the advantages and disadvantages of the course of action that you choose.
Solution
Option 1:Borrow money from Bank
Interest rates can rise, which makes a loan unpalatable or very difficult to pay back.
Option 2:Convert the business to a corporation and sell stock. In this case, I assume that the company issue common stock.
| Pros | Cons |
| The company have complete control over what you do with the money because Banks do not take any ownership position in businesses | Paying back the loan also is the company’s responsibility.Also Bank can put certain restriction on Business or ask for a security while providing Loan Thus, failure to do so can result in the bank foreclosing on the business and hurt the company’s reputation . |
| Bank loan is flexible because it offer the company access to a wide array of terms, fees, application requirements and interest rates, which can be negotiated and adjusted. Therefore, the company can shop around for the loan terms that best suit it and can work with the bank to make the deal as sweet as possible | Interest rates can rise, which makes a loan unpalatable or very difficult to pay back. In some cases, interest rates and other terms can change during the repayment period, making the success of your business subject to alterations in the bank\'s demands |
| The interest on business bank loans is tax-deductible. In other words, bank loans help the company reduce income tax | Banks normally require a lengthy and thorough application process before they will approve a business for a loan, especially in the case of small businesses |
| Bank loan enables business owners to keep cash on their hand to use as operating capital or for personal survival during a down period in your business. Additionally, if business goes bad, they may be able to protect their most important personal assets by declaring bankruptcy | Borrowing money from bank could hamper monthly cash flow. Over the repayment period, the company commit a certain amount to repaying its debt. While the funds may help the company expand initially, the debt obligations can make it difficult to keep up with monthly expenses and debt while also trying to generate cash and profits. Companies that become too leveraged with debt often get mired in stall mode for years |
