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    4 Replies Latest reply on Apr 20, 2010 11:30 AM by Bridge

    business loan vs. investors

    sabre87 Wayfarer
      i am in the very very early stages of starting up a repo company. ive always just assumed that i will need to get a business loan. a friend of mine just informed me that going through an investor would actually benifit me more as well as cost less. is this true? my friend started a carpet cleaning business several years ago with a business loan and not using an investor. he says that after looking back on everything he wishes he could have found an investor.

      i guess my question is, which is the smartest way to go? if in fact an investor is thebetter choice how exactly do i go about getting one. if i dont personally know someone with "loads and loads" of money, am i just SOL or is there another way to find 1?
        • Re: business loan vs. investors
          Uncle Leon Tracker
          I can't imagine thinking that an investor (who providess only money) is preferable to a loan, if you have a choice.

          With a loan, you borrow money....pay it back... you still own 100% of the biz and all profits, and you have no one to answer to.

          An investor continually owns part of your biz and continually gets a portion of profits.

          ON THE OTHER HAND; if the investor brings something to the table (in addition to money) that will help the business prosper; THAT is another matter altogether.
          1 of 1 people found this helpful
          • Re: business loan vs. investors
            Tracker

            sabre87:

            When considering "cost", always calculate the bigger picture. In your scenario, is it better to get a loan where your only commitment is to make a set payment every month or bring on an investor where you need to consider:

            1. What percentage of your company do they want for their investment?

            2. If they provide the majority of start-up funds, will you be OK with owning only a small percentage of your business?

            3. What voting rights (say in the management of the business) does the investor have?

            4. As Uncle Leon mentions, does the investor bring with them any special skills that benefit your business?

            5. How well do you know this person? What if you don't get along and the investor wants to change or sell their portion of the business against your wishes?

            6. What is their requested exit strategy? Do they want to own a perpetual percentage of the company or do they want you to buy them out in a specified period of time?

            Have you thought about finding a partner or partners that can add skills complimentary to your own and funds, too? You may want to check out PartnerUp.com. You can post your business and the partners you seek. Another option is to connect with a community member here that goes by the nickname "phanio". He offers some great financial advice.

            I hope this helps.

            All the Best,

            Doug Dolan

            The Solopreneur's Guide

            http://thesologuide.com/
            1 of 1 people found this helpful
            • Re: business loan vs. investors
              Bridge Navigator
              Debt versus equity.

              Both have their positive and negatives. Equity is generally considered "more expensive" as equity investors require a highre rate of return than debt holders - because they are taking more risk.

               

              Debt - You are in control and own 100%. You have interest payments which affect cash flow.

              Equity - You have a partner (silent or not). If the business is successful, they own part of it. No interest payment.