Editor's choice: SmartBiz
- Large network of SBA lenders
- Low potential APR
- Loans from $30,000-$5 million
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That’s where business loans and investors come in. Whether it’s a venture capitalist, an angel investor or an investment corporation, there are pros and cons to investors — some of the same ones as business loans. Read further to learn just what you’re getting yourself into with either option and how to weigh which might be better for your needs.
There’s a good deal of differences between business loans and investors. First, let’s define an investor. An investor is a person or organization who provides funding for your business in exchange for a share of the company, with hopes that they’ll get a return on their money. You’ll have several types of investors to choose from. No matter which you choose, you’re indefinitely giving up a slice of your company’s value — called equity — in exchange for funding.
A business loan, on the other hand, gives you financing that you pay back. You will not be required to give up equity in your company. If you’re applying for a secured loan, you will typically provide collateral. But letting a bank put a lien on your equipment is a lot different than giving up ownership of a part of your business.
Whether one type of financing is better for your business than another largely depends on factors that include whether your business is new, how much of your company you want to control and whether your investor can bring anything to the table outside of funds.
If you value having complete ownership of your business, a loan could be better suited for you because the lender charges interest while you retain full equity. On the other hand, if you’re looking for an investor that can also be a source of guidance as you learn the ropes of your industry, giving up a little equity might be worth it to you.
Financing your business is a huge decision. When it comes to choosing a business loan over an investor, it’s important to compare your funding options to make sure you’re getting the best value. If you choose to seek an investor, you have many options including family and friends, angel investors and investment corporations.
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