It is certainly more difficult to borrow money for your company in today’s economy than it was just a few years ago. Now, many new business owners tend to look to venture capital rather than to loans for their business needs. However this is not always the best option as there are some drawbacks to seeking investment capital instead of business loans. Today will outline three good reasons to borrow money rather than seek outside capital.
The main reason that most people would give for trying to obtain funding in the form of business loans despite the difficulty in doing so in today’s economy is the issue of ownership. Chances are you’ve given a lot of thought to your future company and you have a very clear vision in your head of how things should run and where you want it to go. By bringing in outside investment you will likely lose some control over your company, in fact for many new business entrepreneurs is not uncommon to lose controlling share of their company. This means that they will no longer have final say in the decisions of the company and if the venture capitalists decide to go in a different direction they will ultimately have control. For many this is not an acceptable option and as such they preferred to borrow instead.
Another reason to obtain business loans as opposed to working through venture capitalist is the issue of reward. Although you take on some extra risk in funding your entire venture on your own, you also receive greater rewards in the event that you succeed. Remember that if you bring in outside investors the purpose for their investment is to make money off of the profits of the company. So if you are able to afford to borrow money in the short term and then turn that money into future profits then you will be able to keep 100% of those profits for yourself. Of course this represents greater risk to you and to your company in that you will have to deal with the burden of interest as well as loan payments during the critical first 12 to 18 months of your company, often times this is worth the risk.
So the issue of borrowing versus investment really comes down to two things; whether or not you are willing to give up partial ownership of your company, and are you willing to share the profit in doing so?