Private Investor or Loan? Identifying the Needs of Your New Business

As a new business owner, you may be presented with several private investor loan options. New businesses usually need capital to survive or expand. The old saying "It takes money to make money" could not be more true when it comes to business. When you need capital, you are faced with the dilemma of choosing between several viable options to acquire it. There are two options you can use: a private investor or a traditional loan. Both options have benefits and drawbacks. Here are a few things to consider if you are trying to decide between a private investor or a loan.

Private Investors

Getting money from a private investor for your business can be a very exciting experience. Someone expresses an interest in your business and is willing to put their money where their mouth is. They believe that your business can be successful and they want to invest in it. If you have a good enough idea, there may be several private investors that want to invest in it. When you run into this scenario, it can be very tempting to take their money. 

The great thing about getting money from private investors is that you may not ever have to repay them. Most of the time, private investors will want to get a share of the business. This is referred to as equity investing and they are actually now a part owner in the business. While it is nice not to have to worry about repaying a loan while your business is growing, it can be discouraging to lose part of your business to someone else. You may no longer have complete control over your creation that you worked so hard to start. You have to weigh the benefits of the money you receive against the partial loss of ownership in the company.

Loans

With a traditional loan, you are given a certain amount of money and you make payments to pay off the balance. With this strategy, you will have to worry about a monthly payment. However, you will not be selling part of your company to anyone. If you already have a steady stream of income for your new business, then this might be the best way to go. With a private investor, you do not have to worry about a monthly payment. Therefore, it is great for those with no cash flow. When you do have some cash flow, getting a loan can help you maintain complete control over the business. 

If creative control is important to you, then this is definitely the way to go. Sometimes, you have worked so hard on something that you hate to give up even a part of it to someone else. You know that it is going to be huge and you want to get all of the returns yourself. If this sounds like your situation, then a loan is most likely the way to go. 

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