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.
SharpShooter Funding Business Loan
Min. Loan Amount: $1,000
Max. Loan Amount: $300,000
Interest Rate: Starting at 5.49%
Requirements: Annual business revenue of $60,000
Borrow up to $300,000
Online loan application
SharpShooter Funding Business Loan
SharpShooter Funding offers loans up to $300,000 for small business owners who have been business for at least 100 days and can show a minimum of $5,000 in monthly deposits ($60,000/year).
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?
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.
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?
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.
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
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.
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
Business equity loan
Frequently asked questions about business loans and investors
That’s up to you. How much equity you give up can vary widely based on your business model, what the funding is for and the investor’s personal preferences.
An exit strategy is a plan to leave a business. An exit strategy for an investor could be as simple as no longer owning equity once they’ve reaped a certain return on their initial investment. As a business owner, your exit strategy could be eventually selling your business or passing it on to your children.
There are many types of business loans, including fixed term loans, unsecured loans, lines of credit, invoice financing and more. Compare different types of business loans to learn more.
Aliyyah Camp is a writer and personal finance blogger who helps readers compare personal, student, car and business loans. Aliyyah earned a BA in communication from the University of Pennsylvania and is based in New York, where she enjoys movies and running outdoors.
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