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Business loans vs. investors

Bank loans and private investments are both great ways to finance a small business - but there are some important differences.

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SharpShooter Funding Business Loan

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You’ve got the plan, you’ve started building your business — maybe you’ve even gotten family and friends to buy in. Now you need to put those big plans into action, but bootstrapping isn’t an option right now.

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.

How do business loans differ from investors?

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.

What are the benefits of business loans and investors?

Business loans
  • Repayment. Once you repay the amount of the loan and interest, you’re free of your agreement with the lender. With a fixed term business loan, you’ll also know the exact amount you’ll repay over the life of the loan.
  • Retain ownership. You get to keep the same ownership over your business as when you started the loan.
  • Simple relationship. With a lender, you simply take out the loan and repay it. No strings attached.
  • Specialized funding. If you run a small business, you can potentially qualify for a government-guaranteed CSBFP loan.
Investors
  • Potential for additional funding. By taking on a share of your company, an investor takes on stakes in how well it performs. If your business needs more funding to succeed, there’s a possibility the investor will be willing to put more toward it — within reason.
  • Personalized guidance. A business investor may have with industry knowledge that could benefit your company growth.
  • No strict business age or revenue criteria. You may be able to get an investor on potential alone. With a good pitch, you could spark investors’ interests before your business starts making money.

What are the drawbacks of business loans and investors?

Business loans
  • Difficult to acquire. If you have a startup without much business credit or revenue to show, it may be tough to get a lender to fund you.
  • Can be restrictive. You may be approved to use the funds for certain purchases only.
  • Personal credit considered. Even if your business is doing well, you could be denied a business loan based on your personal credit.
  • Collateral. Security in the form of business or personal assets may be required. If you default on payments, that means foreclosure on those assets.
Investors
  • Ownership. It’s entirely possible to lose the majority of ownership of your business if your equity is diluted by investors.
  • Relationship. When something is personal, there’s a higher chance of something subjective creating a divide. If an investor doesn’t like a business choice you make, they can pull out.
  • No end date. When there’s no exit plan, there’s no foreseeable point at which you could gain back the ownership you surrendered.
  • Long-term cost. If you decide to sell your business down the road, your investors will need to get a payout based on their equity percentage. If you give out dividends to investors, a percentage of your profits could be diverted into the pocket of your investor indefinitely.

Want a business loan? Compare top online lenders

Name Product Interest Rate Loan Amount Loan Term Minimum Revenue Minimum Time in Business Loans Offered
SharpShooter Funding Business Loan
Prime pricing from 9.00%
$500 - $250,000
6 - 120 months
$10,000 /month
100 days
Unsecured Term, Merchant Cash Advance, Invoice Factoring
To be eligible, you must have been in business for at least 100 days with a minimum of $10,000 in monthly deposits.

SharpShooter provides capital to small businesses that are underserved by banks and credit unions. It measures overall business health and potential rather than focusing strictly on traditional metrics. Fill out a simple application and get pre-approved in minutes. Receive your funds within 24 hours.
Swoop Funding Business Loan
4.00% - 25.00%
$1,000 - $5,000,000
3 - 60 months
$10,000 /month
24 months
Term, MCA, LOC & more
To be eligible, you must have been in business for at least 24 months and have a minimum of $100,000 in annual revenue.

Swoop partners with banks and alternative lenders to match your business with the right funding options. Register for free and browse your offers without affecting your credit score.
Lending Loop Business Loan
Starting at 4.96%
$10,000 - $500,000
3 - 60 months
$8,500 /month
12 months
P2P
To be eligible, you must have been in business for at least 12 months and have a minimum of $100,000 in annual revenue.

Lending Loop is Canada’s first regulated peer-to-peer lending platform. Complete an application in 5 minutes. Once you accept your loan offer, investors will begin to fund your loan on the marketplace. Your loan will be transferred to your bank account when it is fully funded.
OnDeck Business Loan
8.00% – 29.00%
$5,000 - $300,000
6 - 18 months
$10,000 /month
6 months
Secured Term, Line of Credit, Merchant Cash Advance
To be eligible, you must have been in business for at least 6 months with a minimum monthly revenue of $10,000.

OnDeck offers fast and simple financing. Apply in less than 10 minutes with your basic business information and see your loan offers without hurting your credit score. Get approved within 1 business day, and choose your term, amount and payback schedule once approved.
Loans Canada Business Loan
Prime Pricing from 9.00%
$2,000 - $350,000
3 - 60 months
$4,166 /month
100 days
Unsecured Term
To be eligible, you must have been in business for at least 100 days, have a credit score of 410+ and show a minimum of $4,166 in monthly deposits ($50,000/year).

Loans Canada connects Canadian small business owners to lenders offering financing up to $350,000. Complete one simple online application and get matched with your loan options.
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Key factors to consider before applying for a business loan, plus compare 15+ lenders

Which borrowing option is better suited for me?

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.

Bottom line

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.

Compare business loans to other financing options

Line of credit
Business credit card
Merchant cash advance
Personal loan
Business equity loan

Frequently asked questions about business loans and investors

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