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What are the risks involved in this funding situation?

Currently, you’re only funding for your business has come from your rich relative. What are the risks involved in this funding situation? If you didn't have a rich relative upon whom to rely for start-up funding, you could have pursued any of the following options:
Bank loans
Small Business Administration (SBA) programs (www.sba.gov)
Venture capitalists
Stock issuance
Bond sales
(List any/all others)
Select any two of the listed options, explain them, and identify the risks involved with them.

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Please see response attached for best formatting. I hope this helps and take care.




The risks involved in funding received from my rich relative would be that if the business failed, and I would have no way to repay her. As well, sometimes, money and family don't mix. If I am on a repayment schedule, and I miss one payment, for example, perhaps my relative would get upset mad or start to worry that her their investment is not safe. Words flow easier between relatives rather then between me and the Bank (meaning?). As well, other family members might get upset mad that the relative supported my business, and this could cause potential family rifts.

If your company does take off, it will require additional financing that your family and friends might not be able to supply. Then you'll have to approach other investors. If they invest, that will dilute your relatives' stake in your company and make it worth less. So it's best to think twice ...

Solution Summary

This solution expands on the student's response about types of funding for startup of a business. The risks involved in receiving funding for a business from from a rich relative are explored and a variety of other types of funding are discussed e.g. banks loans, venture capitalists, stock, issuance, and others.