If you run a small business you will likely need to acquire additional funding at some point. This could be to pay for expenses which were unexpected or it may be for planned events such as expansion or equipment purchasing. Matter what the reason is you are looking to obtain funding you have essentially two primary sources of funding available to you. The first is to obtain investment capital through organizations such as Angel investment organizations or other venture capitalists. The second is to borrow funds in the form of loans. There are advantages and disadvantages to both of these options and we will be discussing those in today’s discussion. Our ultimate goal is to answer the question why a small business loan and through this comparison we should answer that question.
First we should discuss the option of getting venture capital as opposed to a loan. Venture capital can be a very powerful tool in funding your future business ventures but you have some clear disadvantages as well. For one the venture capitalist will have to weigh in on your entire business concept and not just your business viability. After all they are not just making a bet on whether or not you will be able to repay them but rather whether or not this is the best use for their money. This means that they must share your aid in the future profitability of your company and you must demonstrate that through a well-organized business plan for the future. The other disadvantage of course is that you must give up partial ownership in your company in order to bring in outside capital in this way. Many owners are not comfortable sharing the reins and if you do not wish to do so then venture capital is likely not a very good option for you.
Now onto the question of why a small business loan. If you are running a small business and you are not comfortable clucking venture capital then you will need to borrow money if you need to expand quickly. It may be possible to divert current profits into future expansions and I recommend that you do this as well but this may not get you enough capital to reach all of your goals. Small business loans are specially designed for small company such as yours. They take into consideration the fact that your company has less established credit and does not have as much revenue or business history as larger companies. They have competitive rates on average and can be a very powerful tool in helping you expand your company. Just make sure that you fully understand whatever agreement is that you are signing up for before completing your loan agreement.