The issue of whether to choose fixed or variable rates on personal loans has no simple resolutions. Truth is that it all depends on your needs and on market variation expectations as there are also external variables that can affect the loan’s affordability. It is important to know how these variables interact in order to make an informed decision when it comes to selecting a personal loan with a fixed or variable rate.

Fixed rates remain the same over the whole life of the loan but tend to be higher than variable rates when both compared at any given time. Variable rates on the other side change according to market variations and though the rates are initially lower than fixed rate loans if both loans are taken at the same time, these market variations can increase the rate to higher rates and turn the loan significantly more onerous.

Short Term, Long Term

Depending on the length of the loan a fixed rate or a variable rate will be advisable. Short term loans are not as risky as long term loans if you decide to go for a variable interest rate. However, short term loans are not so easy to afford even though the variable rate implies less interests. Thus, you will need to ponder these two variables to see if you can take advantage of a short term loan with a variable interest rate.

Long term loans are more risky because market variations tend to occur sooner or later and though the rates may decrease, they may also increase significantly. Therefore, on long term loans, a fixed rate loans is advisable as it will protect you from market variations and inflation too.

Inflation Expectations

The inflation expectations are another important issue. Inflation is an increase of the overall level of prices due to a depreciation of the value of currency. Since the monetary note is worth less, more money is needed to purchase goods which implies price raises. Unless salaries increase too, the purchase power of salary decreases worsening people’s ability to purchase goods, repay debt, and save.

When it comes to debt, taking fixed rate loans protects you from inflation because the monthly payments remain the same over the whole life of the loan. Whereas, on variable rate loans, the interest rate would rise to compensate for inflation. Thus, if economy experts are predicting high inflation figures over the next years, you need to consider applying for a fixed rate loan rather than a variable rate loan even if the interest rate is higher.

Conclusion

For those who are adventurous and like to save as much money as possible even by taking risks, variable rates are undoubtedly the way to go. They provide lower monthly payments and an overall lower amount of interests over the whole life of the loan.

However, for those who have a more conservative nature and prefer to avoid risks, fixed interest rate personal loans are a wiser choice. These loans can provide the funds needed at a slightly higher cost but also protect customers from market variations and inflation which can be disastrous for those that count only with a fixed income.

The only way to achieve a high enough return on an investment in a startup (to compensate for the very high risk of failure) is through an equity investment or a hybrid debt – equity investment.

So, how is an equity investment accomplished from a legal perspective? There are 5 distinct steps.

Valuation.

First, an estimated value of the company for investment purposes must be established. An article I published in 2009, Value an Emerging Business for Equity Funding, provides a detailed method to value an early stage business (click here to see it).

This valuation methodology is focused on the key elements of any start-up: gross margin and cash flow.

Using this method you’ll have a somewhat defensible position on how you’ve come up with a pre-money valuation for your company and a gauge on whether your company can raise outside money. Of course, this is subject to negotiation with the ultimate investors.

In addition to the detailed method, there is a rule of thumb method (of course best used for measuring thumbs) that states the first $1MM of investment in an early stage, pre-revenue company, should purchase 33% to 40% of the company.

If your number from the detailed valuation process is out of line with the rule of thumb, there has to be a “special factor” to show why you’re company is out of the ordinary. Usually this is because the company already has cash flow and customers. But, be careful about being too high. It’s just one more reason for an investor to reject your company.

If, on the other hand, your valuation is too low (and you have to give up too much equity to raise the capital you need), it means your business model may not be able to support outside investment. Perhaps your gross margins are too low, you can’t achieve profitability or you can’t scale the business.

Capitalization Table.

After a value is established, a capitalization table is assembled. A capitalization table (or ‘cap’ table) shows the ownership interests in the company over time in a snapshot format, starting with the founding and stepping through the various capital changes, showing the diluted effects of each subsequent issue of equity by the company.

The valuation is used to calculate how much equity must be issued to raise the desired amount of capital and the purchase price of each share (or other security). The cap table creates the game plan for the ownership structure of the entity as each amount of money is raised.

Term Sheet.

Next, a terms sheet is prepared describing the investment that is based on the cap table. This step is optional, but can be a good practice to avoid the cost of preparing the investment documents and either having no purchasers or having to revise them because of deal term changes.

The terms sheet is used during discussions with potential investors and is intended to secure indications of interest and comments on the proposed arrangement. Because the securities laws (state and federal) govern both the offer and sale of securities, the terms sheet isn’t actually an offer. There’s no obligation on either side: the company can change the deal and the potential investor can later decide not to invest.

Investment Documents.

Once the deal terms are fairly well established, the legal documents to complete the investment are prepared. These documents (as well as the offer and sale) must comply with federal and state securities laws.

First are the entity related documents. If the start-up was organized as a limited liability company, it will usually be converted into a corporation. If it is a corporation, the capital structure may have to be revised, and the governing documents and corporate housekeeping updated or revised. Changes to the capital structure can include increasing the number of authorized shares or creating a preferred class of stock.

If appropriate, founder employment agreements, intellectual property assignments and transfers of property are made to the company.

Then offering related documents are prepared. They include the stock purchase agreement, private offering memorandum, investor questionnaire (for compliance with securities laws) shareholders agreement, if applicable, and the board of directors written consent for the sale.

Finally, the documents to be filed, including an SEC Form D, are prepared and filed.

Of course, all of the above are prepared based on a review of the company documentation, the business plan and communications with counsel.

Offers and Sales.

Finally come the offers and sales of stock. The founders (usually without additional compensation) make offers and sell the stock to the investors.

Investors sign the documents and submit checks for the purchase. For certain offerings these are held in escrow until a minimum amount of capital has been raised. For others the funds are immediately available to the company.

When the sale is complete, the company issues a stock certificate to the investor as well as copies of the signed documents. Also, no later than the time of the first sale, a Form D is filed electronically with the SEC.

Post Sale.

After the sale of stock, the founders must operate the company in accordance with required corporate protocol, but can use the capital to grow and achieve the milestones set out in the business plan.

Raising capital through the sale of equity can be complicated and time consuming, but is the only way to adequately compensate investors for the very high risk associated with investing in early stage and startup companies.

Of course, though, doing so must be accomplished in compliance with federal and state securities laws.

Don’t overlook mutual funds in your search for the best investment for 2011 and beyond, because these investment packages offer most people advantages not found elsewhere. View your investment goal as putting together the best investment portfolio possible, one that doesn’t require your constant attention. Use mutual funds as your building blocks.

Every balanced and diversified investment portfolio consists basically of three parts: stocks, bonds, and money market securities (safe, liquid investments). Every investor who wants to sleep at night needs a diversified portfolio, and the best investment portfolio for 2011 and beyond will include alternative investments like gold and real estate as well. This can be a tall order if you scan the financial tables in search of the best investment in each category every year. Or you can approach things in a sensible fashion by simply investing with the biggest and best mutual fund companies.

You don’t need a stock brokerage account to invest in stocks and bonds, a commodities broker to invest in gold and silver, or a real estate broker to invest in real estate. Nor do you need a personal banker to find a place to stash some cash and earn interest with high safety. You can do all of the above by simply opening a mutual fund account with one or more of the biggest and best mutual fund companies in America. Then, at your fingertips, you’ve got all of the investment options you need to put together a truly diversified personal investment portfolio.

After all, mutual funds were designed for the majority of people who don’t have the time, expertise or inclination to manage a portfolio of individual investment securities like stocks and bonds. That’s what these funds do – they manage a portfolio of securities for their investors in the form of stock funds, bond funds, and money market funds. By investing in all three categories you can put together you own personal best investment portfolio for 2011 and for many years to come with relative ease. To add alternative investments to your portfolio, just add specialty stock funds that specialize in areas like gold or real estate.

Now, everyone wants to know who the best mutual fund companies are for obvious reasons. This is debatable; but the biggest and most popular are: Vanguard, Fidelity, and American Funds. They are clearly the largest in terms of assets managed and/or number of investors serviced, and they’ve been around for decades. All three have risen to the top by offering a wide array of quality funds and good service. The fund company picks the stocks, bonds, etc. and does the day to day portfolio management. You as an investor simply pick which funds to invest in and how much to invest in each.

Spend some time getting up to speed on mutual funds because they can greatly simplify your investment life. Face it, you’ll never find the single best investment for 2011 or for any year that follows. What you really need in these uncertain times is a truly diversified investment portfolio. Diversification is the key to investing for the future, and is also the signature of mutual funds. If there’s a better way than a collection of mutual funds for the average person to put together his or her best investment portfolio for 2011 and beyond, I’d sure like to know about it.