With all of these major expenses, a business owner may want to consider borrowing money from an outside source for an expansion or start-up capital like Angel investors or business loans…
Small business owners eventually look for loan opportunities which can help fund their startups or provide for their overheads which may include costs of equipment, manpower, marketing and other physical assets.
External funding for a new business can come from a variety of sources and there are several options to consider when looking for capital assistance. Two options that’s most considered by many are angel investors and business loans.
Angel Investors
Angel investors provide investment money to high-potential businesses in exchange for a portion of the profit or ownership equity. Often angel investors are skilled business individuals and will want to have a say in managing the company. This can be beneficial to the business as angel investors can offer expert advice and add value to the company, and since their money is on the line, they will be motivated to see your business succeed.
Pros
- Can provide the needed start-up capital or investment money
- Flexible and negotiable business agreements
- Can become an important mentor
- Does not require high monthly fees which traditional lenders enforce
- Community involvement
Cons
- Rarely reinvests
- Can actually be deceptive
- Can be costly as you could be giving up anywhere from 10-50 percent of your business
- Sharing decision-making authority
- Active company involvement can lead to complications and problems
Business Loans
Business loans or debt financing is borrowed capital that companies use for outlays that they are unable to pay for themselves. This kind of loan may be the preferred way to raise capital, especially for small businesses and independent entrepreneurs. A business loan is debt that a company is obligated to pay back according to the loan’s terms and conditions.
Pros
- Have no say in the business operation
- Not entitled to profits and future earnings
- Interest payments can be deductible on your taxes
- Money available for immediate use
Cons
- Lack of flexibility
- High interest rates
- Collateral
- Require more information and a lengthy review process
- Need to have a good credit rating
Whichever source of funding you seek, whether reaching out to angel investors or looking to apply for business loans, it’s crucial that you explore and weigh in the pros and cons associated with each option to see which kind of loan opportunity will be a viable option for you. It’s important to choose wisely depending on your financial status and your requirement criteria.
