Fun Online Polls: Business Finance and car washes

Thanks to everybody who took part in last week's Fun Online Poll, results as follows:

What are the best sources of finance for small and medium-sized businesses?

Retained profits - 44 votes
The owners' own money - 41 votes
Bank loans secured on land and buildings - 19 votes
Unsecured bank loans - 7 votes
Asset finance such as hire purchase - 5 votes
Government grants - 3 votes
Other, please specify - 6 votes

Ho hum.

I'd completely agree with the first two, and as Jaffa pointed out, after a few years of trading, there is no difference between them.

I'm relieved to see how few voted for 'Government grants', which don't make sense to me (or Lola). Not only is the government is notoriously bad at picking winners but such grants can only be funded out of higher taxes on everybody else, which is a distortion on both sides of the equation and eats in to the best type of finance - retained profits.

I don't know why so many people went for 'loans secured on land and buildings'; if you borrow money to buy land, then you aren't investing in 'the business' you are just paying interest (rent) the purchase price of the building (which in itself is pre-paid rent). None of that money goes into the business (this doesn't apply to loans to build the physical building - see below). And if a not-so successful business doesn't make retained profits and has to borrow on the strength of unearned income (latent capital gains on land and buildings) then that's another distortion - far better for banks to lend to businesses on the strength of the underlying business and not on the back of windfall capital gains.

Finally, I'm a bit disappointed that so few choose 'asset finance' (which include financing the cost of the actual building, but not the land). For these purposes, it doesn't make any difference whether you rent a car, finance lease it or buy it on hire purchase, you make your money by using the car in the business, and not by simply owning a car (unless you run a car-hire business, of course). Sean in the comments concurred.
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Sticking with cars, how often do you wash yours?

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