Why Seeking Loans is Better for a Business than Pursuing an Investor

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Close up of a rubber stamp with the text loan over timeline. Concept of term loan. 3D illustration

The business world is renowned for its versatility and its ability to accommodate millions of business ideas and make them work.

Even the strangest and frankly, preposterous business ideas have been earning a significant profit in the present times; Gwyneth Paltrow’s Goop is the paradigm here.

Behind every business idea’s growth and its profitability, there is one common factor.

Can You Guess What it Could Be?

The dedication and hard work of the business owner? It can be, but not always.

The lack of competition in the sector the business is in? It is highly unlikely.

The answer lies in the foundation of the business.

Some might think that a great business idea is key to the business’ success; however, the business idea would never be able to work its magic without the right investment.

Therefore, a business’ success depends on the right amount of funding. As the money in our bank account denotes the kind of status we enjoy in society, the same is true for the business establishments.

Primarily, there are two ways to fund a business.

One is through getting loans through banks or private lenders, the latter being slightly more convenient;

And the second is to get an investor to loosen his pocket for you.

Out of these two, which do you think is the better option? If I were to answer, I would say that loans are more beneficial for a business.

Why?

Let us find out.

Always in Control

The first reason as to why loans are higher up on the advantage scale than an investor is a fact that through the acquisition of loans, a business owner would never lose his control over his business.

However, through an investor the opposite is true.

An investor would never just invest for an interest payment; he invests for much more gains than just that. He invests in a company to get a certain amount of ownership along with voting rights in every decision that the business takes.

For instance,

Investment in equity shares means that the investor is buying a portion of the company’s ownership. Not only does the equity shareholder get a part of the company’s profits, but he would also have voting rights. These rights would allow him to participate in the decisions the company will be making.

Anyone with the highest proportion of equity shares would become the dominating force in business decisions.

With loans, nothing of this sort will ever happen. You will have your money and never stand the chance of losing the ownership of your company; even 1% is difficult to part with when your business is your baby, sentimental, but true.

 

No Interference at All

The relationship between the lender and the borrower is one of the simplest in the world.

The borrower borrows the loan amount, and as long as he is making regular payments to the lender, the lender would keep minding his own business.

Can you say that for any of your other relationships? I think not

A lender will never ask you what you are doing with his money.

A lender would never nag you about your decision making and money management skills.

A lender would never poke into your business dealings time and time again and suggest better ways to do what you are already doing better.

I wish I could tell you the same about an investor.

Can Foresee an End

The agreement between a lender and a borrower is for a stipulated time and once that time is up, you are free from your obligations to the lender.

For instance;

You can taken one of the Easy Loans the lender provides, these loans are quick to acquire and quick to repay, therefore the use of the word easy in its name.

A loan like this can be repaid in just a couple of months.

So, when the last of the repayments are made, you and the lender have both gained as much as you can from the agreement and henceforth it would no longer be applicable. You are free of each other.

However, with an investor that is certainly not the case. An investor has very easily staked his ownership in your business. If your business turns out to become extremely profitable, the investor will not be going anywhere. This is because he would be earning a hefty paycheck on his investment as well as the part of the profits he has claimed in his name.

Winding Up

In the end, I would want to say that an investor also has certain benefits, like he often acts as a guide to the up-and-coming business owners.

However, taking the complete picture into account, the investor is not as beneficial as a loan. What do you think on this matter?

 

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