When it comes to funding your business, there are many paths you can take, with advantages and disadvantages in either of them. It all comes down to what you want to do with your project and your plans for the future.
So, the roads may be confusing and sometimes you can make bad choices because you don’t have all the facts. And sometimes because you don’t even have a plan. This is the first mistake you want to avoid, but most of all, it will become a deal-breaker for any funding you decide, whether small business loans like the ones Camino Financial offers, or with investors in any capacity. Yes, there are different kinds of investors.
So, what’s best for you? There is not a simple answer. The first thing you need to do, no matter the future decision you take is having a solid business plan, projections, and a proven product, service, or Minimum Viable Product (MVP) to show off.
Investor vs Small Business Loans
Availability. There is no shortage of either, but investors are more specific in what they put their money in. There are specialized investment portfolios that only support projects in, let’s say, green energy, education, health tech that could work wonders for you if you are into those topics. But if your company is not in those industries, you have no chance. Yet, there are independent investors who look for business opportunities in all and every industry and those are your possible pools of money. When it comes to small business loans, there are multiple choices to take, from traditional banks, government loans and financial institutions on and offline.
Equity. When it comes to investors, you’ll pay to give them a slice of your company for their money. How much? It depends on the valuation of your assets, intellectual property, know-how, and potential for business. If your company’s value is 100 dollars and the investor gives you 10 dollars, he’ll own 10% of your company. With small business loans, you keep all of your shares as a sole owner.
Smart money. Even though there are different types of investors, with silent ones that are only in for the revenue or what we call smart money. That is investors that know about the industry, business strategy, or any other topics that can help you to grow your business. And it’s in their best interest to help you grow since those 100 dollars can become 1,000 and his or her 10 dollars into 100 whereas, with small business loans, their interest in you only covers the knowledge that you’ll repay what you borrow in time.
Revenue. When your company grows, revenue gets bigger and juicier and an investor not only will be interested in this, rather than demands it. His revenue is tied to the company’s. The more you make, the more you pay. With loans, you have a certain amount of money to pay back and, once you are done, the rest of the money your company makes it’s yours.
Exit strategies. If you are planning to take an investor, one of the main things you’ll need to consider is an exit strategy for, let’s say in 10 years when the investor would have its investment returned and made a profit and you can buy him out. This works both ways in case your investor wants to pull out before time. With small business loans, the exit strategy is called paying back. You’ll have terms, interest rates, and regular payments that will be repaying what you borrow and, at the end of those terms, each can go its own way without so much as the last check.
Take a hard look at where you are and what to do you need for your business and make your choice. Take into account that you should never give away more than 49% of the value of your company so you can remain on the steering wheel and lead your actions on your own terms but, if you finally decide on either, also remember that you are making a deal that you have to fulfill.