Which Type of Financing Costs the Most?

Which Type of Financing Costs the Most?
The cost of financing is usually related to the degree of risk involved. If the risk is high, so is the
cost.
1. The least expensive money to use is your own. The cost to you is
whatever you would have made on your money by investing it in other
sources (savings, money market accounts, bonds, retirement plans, real estate,
etc.).
Note: At this point, we should mention credit cards. Many new business
owners borrow heavily on their credit cards only to find themselves up to their
ears in debt. Credit cards can be one of the most expensive sources of cash and
have paved the road to bankruptcy court more than once. Don't get caught in
this trap!
2. Friends and relatives: The next lowest in cost generally comes from
friends and relatives who may charge you a lower interest rate. But don't
forget that it may cost you in other ways.
3. Banks & other traditional lenders: The third on the cost ladder is
probably the traditional lender (banks, SBA, etc.) This lender will want to
know what the capital will be used for and will require that it be used for those
specific needs. If the risk is too high, most conventional lenders cannot
approve your loan because it would be a poor financial decision for the bank's
investors. One default out of ten will undermine their whole program.
4. Outside lenders and venture capitalists: Traditionally, the most
expensive is the outside lender who charges a high interest rate because of the
risk involved and the venture capitalist who requires a percentage of your
business.