Like many other entrepreneurs, when Laura Trust and Alan Litchman decided to buy a business, they raised some money from friends and family. Unlike many entrepreneurs, however, they were so adamant about retaining full control of the business they bought—Finagle A Bagel—that they would not even consider venture capital financing or selling stock. Instead, Litchman says, ?oWe made the decision to get banks to finance this company, which is a difficult thing.??
1. If the copresidents of Finagle A Bagel had approached venture capitalists for funding, they probably would have been able to open more new stores in less time. Instead, they opted to use bank financing that has to be repaid. Do you agree with their decision? Why?
2. Given their growth plans, why would the copresidents repay principal and interest on borrowed money rather than pay interest only? Which repayment plan would Finagle A Bagel’s bank prefer?
3. Assuming that Finagle A Bagel decides to raise money through an IPO, what are the advantages and disadvantages of issuing stock to obtain the money needed to start or expand a business?
4. As an investor, would you be willing to buy shares in Finagle A Bagel? Explain why the company’s stock would or would not be a good investment for you.