If your company is in need of funding, there are a few ways go about getting it. You could get a business loan or go for venture capital. These both have advantages and disadvantages. We will discuss some of these in today’s article.
Starting capital and operational capital: Depending on your agreement, you may get more starting capital from either a business loan or from venture capital. However, most entrepreneurs find it much easier to get enough startup cash from venture capitalists, or angel investors, than from loans.
This is mostly due to increasing scrutiny in the small business lending market since the economic crisis. Some banks’ loans to small businesses defaulted in double-digit percentages. So getting funding has become more difficult. Venture capital also wins in terms of operational costs, too. Although you’ll have to share the profits at some point, your costs are cheaper if you aren’t actively paying back a loan.
Even with all the hassle, the one way in which getting a business loan is clearly the winner is in terms of ownership. If you take on venture capitalists, you will lose some stake in your company. Depending on the nature of your agreement, you may lose the controlling share of it. This means you’ll have to defer to them on all major business decisions. Many new entrepreneurs are okay with this, but some simply aren’t. If you don’t want to give up partial ownership in your company, you will want to stick to borrowing money.