Business :: Business Loan vs. Equity Investment

So, you enter need of capital to get started on your own business or else you are looking for funds to venture into certain projects for the company?s growth. Perhaps, you should seek for certain expansions for your business. All of which requires one thing to get started on with; more funds.

When it comes to this, we are usually as a result of two options: getting a business loan or taking care of equity investors. But we all do know it is definitely not a choice we are able to make immediately or without due consideration on both options as making rash business decisions can result in extremely dire consequences.

If loan one thinks of, Singapore business loans or Singapore SME loans are two good options to think about. But to discover whether business loan or equity investment is basically better on your company, it is very important to critically weigh in the pros and cons of both choices. Here is a list to think about both options:

Business Loan - Advantages Still the Boss - You will still have complete freedom to perform the business at all you see fit, with zero interference while having extra funds (from the loan). At once, you remain usually the one with the final say.

No Profit Sharing - If your small business thrives from effective utilisation of the loan, all profits earned is assigned to you alone without the need to share with other parties, plus your only obligation is always to repay your loan completely to the bank or financial instruction, plus interests.

Better Financial Planning - As you have a repayment plan to the loan, it is possible to plan the way you use your funds more efficiently while making your periodical payments; supplying you with greater freedom to handle your company funds.

Business Loan - Disadvantages Paying More - You will be definitely be repaying interests that comes with the loan and also the longer your repayment period, the harder you are trying to repay and it can incur more losses if the business or project is just not going well.

Troublesome - Getting a small business loan requires not just a meeting with the bank?s representative it also involves various documentations and also at the same time, banks or financial institutions might need substantial time to take into consideration approval; that may be cumbersome. There are no guarantees of approval either.

Incomplete Loan - Even should your loan is eligible, you will find there's chance you do not obtain the full amount but only some percentage of the total amount applied for. In some cases, collaterals generally is a necessity for approval and this certainly adds towards the risks of higher losses should the business fails without any reason.

Equity Investment - Advantages More Funds - By looking out for equity investors, there's a chance you're able to obtain larger sums of capital if you're able to persuade them as banks and finance institutions are cautious in borrowing considerable amounts and they are certainly more skeptical in approving loans for brand spanking new or growing businesses.

Flexible Repayment - Applying business loan means you need to adhere to periodical payment periods, and failing to pay at certain periods may result in higher interests or penalties. With equity investors, repayment is a bit more flexible and negotiable; including the use of various forms of profit sharing as being a method of repayment.

Helpfulness - Getting experienced or well-connected equity investors can be really good to help you run your company, while they might be able offer valuable advice. Moreover, they might be in a position to help establish better connections or expand your network, which ultimately serves to the interests of your business.

Equity Investment - Disadvantages Loss of Control - This is perhaps the greatest disadvantage of getting equity investors as they are part owners of your organization; should they seek to gain treatments for the operations of one's business, you risk losing complete control of your business operations.

Profit Sharing - You have obligations to express monetary gains using them, while they are also your co-owners. This could mean removing valuable funds that might be reinvested for other ventures or purposes beneficial to the growth and expansion of your organization.

Pulling Out - They reserve the rights to drag their investments when they lose confidence on the company for any reason and this could be highly detrimental to your organization, specially when certain projects are determined by their funds to run smoothly. In the end, you need to determine which choices better where it is possible to maximize its perks while minimizing its risks. Every industry will have its unique situation. For example in biotechnology startups, the research and development phase usually takes decades to finish. While a business loan is good, it may not be the best option to finance biotechnology startups. I have a friend who trying to develop a more potent HIV testing in Singapore chose equity investment, as business loans just weren't suitable for his business. In making this decision, always think about the size of your respective business, the size of the project and also the amount of funds required and even more importantly how it can ultimately serve on the best interests of your business.