If you needed significant funds to start a new business, what options would you have for borrowing start-up funds? What would be the trade-offs you would consider in deciding how to finance your new business? In an ideal case, which type or types of

borrowing would you use to fund your start-up?

The text identifies a number of borrowing options, including:
1 ) Friends and family. Personal contacts are often good sources for financing because, unlike banks or other lending institutions, they often do not require a high rate of return or demand to see the business turn a quick profit. However, borrowing from friends or family could complicate personal relationships if you are unable to repay them as agreed.
2 ) Credit cards are a convenient way to obtain funds quickly. But the risk associated with using credit cards for initial business financing is the high rate of interest charged on unpaid balances, which could cause a business owner to take on too much debt. They would be a good source of funding smaller sums that can be paid off in full each month and are not good sources of large amounts of money that would have to be paid off over a long period of time.
3 ) Home equity loan or line of credit or borrowing against any other personal asset such as a retirement fund. Such borrowing could make a large amount of funds available, but the consequences of the business failing are very severe since that money could be lost forever.
4 ) Business loans and lines of credit. Banks and savings and loan institutions offer start-up loans and lines of credit to help businesses make payroll during slower periods as well as capital loans to buy equipment or machinery. Such loans or credit lines would make larger amounts of money available and at more reasonable interest rates than credit cards, and would not jeopardize personal assets. However, lending institutions do not approve all loan requests.

Of these four options, a business loan or line of credit would be the optimal choice. Both offer the most reasonable credit terms, at the least risk to personal resources or relationships.