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Are junk bonds viable source of expansion of small business

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John and I have been discussing my belief that junk bonds should not be allowed. John asked me to look at it from the issuer's point and I did.

Let's say you and I started a small company several years ago and through our hard work, we have been very successful. We have paid our bills, made a good profit, but are still a medium sized company. We now have a great idea and have proven it to ourselves and our leadership that we are thinking about going the right way.

Now where do we get the $10M from? Starting the process of selling stock is an arduous and expensive plan compared with issuing junk bonds. I had a very difficult time seeing this but John's explanation caused me to get on the Internet and prove him right and me wrong.

What do you think?

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Solution Summary

The 444 word, cited solution explains the types of investors together with the conditions and/or constraints that would be placed on a business for using the services of the investors. Four levels of investing are discussed with an assessment of each.

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The first level of financing for new business is often among the so-called "3 F's". Those are the so-called friends, family and fools. In your case, you are well beyond that.

Next level of financing is from what is called 'angel investors'. Your transaction is probably one in which an angel investor could be interested although your $10M might be too much for them. The truth is that the most risk appears to be in projects in which Angel investors would be interested, and the higher risk demands a higher return. The following article suggests 10-20 times the original investment in five years. http://en.wikipedia.org/wiki/Angel_investor

The risk to the new business is that the angel investor will want ...

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