Business :: Business Loan vs. Equity Investment
So, you are in need of capital to start your own business or perhaps you are looking for funds to adventure into certain projects to your company?s growth. Perhaps, you might want to seek for certain expansions to your business. All of which requires one thing to begin with; more funds.
When it comes to this, were usually into two options: obtaining a business loan or looking out for equity investors. But perform know it is certainly not a choice we are able to make in an instant or without due consideration on both options as making rash business decisions may result in extremely dire consequences.
If loan pops into their heads, Singapore business loans or Singapore SME loans are two good options to consider. But to find out whether business loan or equity investment is basically better on your company, it is important to critically weigh in the pros and cons of both choices. Here is a list to take into account both options:
Business Loan - Advantages Still the Boss - You will still have complete freedom to run the business by any means you see fit, with zero interference while having extra funds (in the loan). At the same time frame, you remain normally the one with the final say.
No Profit Sharing - If your business thrives from effective use of the loan, all profits earned is owned by you alone without having to share with other parties, along with your only obligation is usually to repay your loan in full to the bank or financial instruction, plus interests.
Better Financial Planning - As you have a repayment plan for the loan, you are able to plan the way you use your funds more effectively while making your periodical payments; giving you greater freedom to manage your company funds.
Business Loan - Disadvantages Paying More - You will be definitely be paying interests that comes while using loan as well as the longer your payment period, the harder you are repaying and it can incur more losses should your business or project is just not going well.
Troublesome - Getting a small business loan requires not only a meeting with all the bank?s representative it involves various documentations and at the same time, banks or loan companies might need substantial time to think about approval; which is often cumbersome. There are no guarantees of approval either.
Incomplete Loan - Even if your loan is approved, you will find there's chance you will possibly not obtain the full amount but only a particular percentage of the amount applied for. In some cases, collaterals might be a necessity for approval and also this certainly adds towards the risks of higher losses should the business fails unconditionally.
Equity Investment - Advantages More Funds - By looking out for equity investors, you could be able to obtain larger sums of capital if you might be able to persuade them as banks and banking institutions are cautious in borrowing huge amounts and they are certainly more skeptical in approving loans for brand spanking new or growing businesses.
Flexible Repayment - Applying business loan means you will 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 lot more flexible and negotiable; for example the use of many forms of profit sharing being a method of repayment.
Helpfulness - Getting experienced or well-connected equity investors will be really good to help you run your organization, since they might be able offer valuable advice. Moreover, they might be able to help establish better connections or expand your network, which ultimately serves towards the interests of your business.
Equity Investment - Disadvantages Loss of Control - This is perhaps the highest disadvantage of getting equity investors because they are part owners of your small business; should they seek to gain treatments for the operations of your respective business, you risk losing complete control of your business operations.
Profit Sharing - You have obligations to talk about monetary gains together, because they are also your co-owners. This could mean depriving them of valuable funds that may be reinvested for other ventures or purposes beneficial towards the growth and expansion of your business.
Pulling Out - They reserve the rights to tug their investments if they lose confidence on the organization for any reason which could be highly detrimental to your organization, particularly if certain projects are depending on their funds to own smoothly. In the end, you should determine which options are better where you can maximize its perks while minimizing its risks. Every industry may have its unique situation. For example in biotechnology startups, your research and development phase usually takes decades to finish. While an enterprise loan is good, it might not be the best choice to finance biotechnology startups. I have a friend who attempting to develop a more efficient HIV testing in Singapore prefered equity investment, as business loans were not suitable for his business. In making this decision, always think about the size of one's business, the dimensions of the project and also the amount of funds required and more importantly how it can ultimately serve on the best interests of your small business.
