Jenny sells 10 pairs of shoes made to order for $1,000 each. For Christmas, she could sell 50. She gets the shoes from a supplier who told her that if she wants him to produce 50 pairs of shoes, she needs to give him $15,000 to buy the raw materials. Jenny doesn’t have any cash.
Her Marketing friend recommends she asks her family for money. She is worried. There is a chance that she will only be able to sell ten pairs, be forced to keep the other 40 in Inventory for months and be unable to pay back her Friends & Family.
Her Finance friend recommends to borrow from a bank or the Small Business Administration (SBA). He is also willing to give her the cash she needs if she agrees to share all profits. He says that is called Equity.
What would you recommend her to do, to borrow $15,000 from a bank or get an investor? Think of your response from the point of view of a bank or an investor first, and then Jenny’s.
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