Page 83 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.71, # 2, 2014, pp. 81-93

Even though there are limited outside first-round financing sources, entrepreneurs should

compare all the advantages and advantages of personal assets and outside investment. Using

self-assets allow all of the profits and wealth go to the entrepreneur. At the same time, it avoids

the difficulty of adding more shareholders. With more partners the entrepreneur has to grow a

business larger to meet his personal goals for income and wealth plus those of the other partners.

There also some disadvantages of using entrepreneur’s assets. First of all, limited funds

might limit the growth of business. On the other hand, when entrepreneur used own assets then

he/she is the only one at risk. If the venture fails, all of the consequences are the entrepreneur’s to

deal with. In addition, the entrepreneur may not have all of the skills, knowledge and experience

needed to successful launch and grow the venture. However having professional investors involved

in your business venture gives you access to valuable business advice and social capital.

Asking friends and families to invest is another common way that start-ups are funded.

―Unfortunately in today’s economy, in many cases, asking friends and family for money is the

only way a small business startup can get funding,‖ said Bob Shephard, director of community

partnerships at the National Entrepreneur Center (NEC). According to the National Small

Business Association, in 2013, 16 percent of business owners reported turning to friends and

family for loans to cover their costs.

Family and friends are still one of the best sources, entrepreneurs tend to raise money

from relatives, colleagues and other people they know well (The Wall Street Journal 2010).

While some startups are financed with capital borrowed from financial institutions, getting a

bank loan can be next to impossible, especially for people with little or no collateral, a bad credit

rating and no prior business experience. Even if loan is approved, chances are the interest

payments will make it difficult for entrepreneur to generate a profit. While borrowing from

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