Whether you’re an established business in the market or you’ve just launched a start-up, you’ll most likely need financing to expand into new markets or develop a new product. There are many reasons a business may require financing. As a business owner, it’s important that you understand what’s important to investors and lenders so you can succeed when it comes to obtaining financing for your business. Note that financing can either be an investment in exchange for a stake or a business loan. Here’s what you should consider when weighing up options for business loans or finance options.
Both investors and lenders will consider the income your business generates before deciding whether or not to give you the money you need. If your business doesn’t have any history of profitability and income, lending institutions may shy away from giving you a business loan. However, if your company has a high potential for growth and profitability in the future, investors may give you the finance you need for an ownership stake.
Does your business have any assets or collateral? Lenders will want to know if your company has any assets as they can serve as a safety backup in case you can’t pay the loan back. Investors may not consider your company’s assets. They are most likely to be interested in any intellectual or proprietary property if you’re a tech company.
Cost of Financing
No one is going to give you thousands of dollars simply because you asked for it. As a business owner, you must be honest and realistic with yourself. If your company might have a hard time making interest payments, a business loan won’t be a good option. Understand that loan come with original fees, interest rates, and brokers’ fees. And you must repay the loan. Financing through investment may not necessarily have interest expense but you may have to give up an ownership stake of the business. Consider business finance that your business is comfortable with and can service easily.
Amount of Financing
Whether you’re looking for finance to invest in growth or launch a new product, you must determine the amount of money you need. A loan may be a good option if you’re looking for a small amount of financing, say $50,000. However, if you need a very high amount of financing the investment option might be the best. Take time to compare the borrowing options available to you so you can make an informed decision.
The financing method you choose will certainly affect the level of control and independence you have in operating the business. Getting financing from a lender might not affect your independence since the lending institution is only concerned with on-time repayment. However, taking on an investor in exchange for an ownership stake in the business will mean relinquishing some level of control over the operations of your business. Some investors may need to be part of the advisory board so they can have a voice in how the business grows.
Financing through investment may bring on board expertise and input that may contribute to the growth and profitability of the business. Borrowing from a lender leaves you to enjoy the rewards yourself if the business takes off and becomes successful. Be sure to take your time and select the right financing partner. No matter your business needs there are finance brokers that can help you make the right call and formulate a financial strategy for your overall growth.