Venture Capital vs. Small Business Loan for Your Startup – Part 2
If you already have the funds to turn your business idea into a reality, it’s time to find out if your concept will fly. Hopefully, all your planning, research, hard work, and personal financial investment will propel your business to immediate success. If everything goes according to plan, you are selling, trending, growing and you start to feel comfortable that you are really onto something. Now you need to take it to the next level!
It’s time to expand, hire more people, sell more, add new services or products to your business. This is when you start to look for more capital to keep you business on the right track and moving forward. What happens when you’ve exhausted your finances? You’ve already sucked your crowdfunders dry, so where is the next wad of cash going to come from so your business doesn’t fizzle out and die?
The good new is is that there are plenty of investors out there looking for the next great business, product, service, or cause to invest their money with the hopes of gaining huge returns. But, should you seek capital from Venture Capitalists or take out a small business loan?
The difference between venture capital and a small business loan
Pros of a small business loan
Taking out a new load means that you are still only answering to yourself. No one is going to tell you how to disperse of the money you get from that loan. You decide where that money is best spent, whether it’s on additional staff, more inventory, new services, streamlining your delivery, getting a new vehicle or opening up new ways for people to learn about your services. The only thing a small business loan is going to require from you is that you pay back the money. Hence business LOAN.
The pro is that you are still 100% in charge of your company, you just have a little more cash to get things moving. Another pro is that getting the money from a small business loan takes a lot less time, giving you money in hand quickly to grow your business.
The con is that you will have to pay back the loan, even if your business fails before you acquire enough revenue to pay back your loan.
Pros of a venture capital
Now, seeking venture capital to fund the next phase of your business is like looking for a partner that you invite into the business and allow them a say in the day to day operations. A venture capitalist is going to want influence over how his or her money is spent, and by accepting their cash, you give up some of the control of your company. The VCs are going to want a percentage of your company. This could be a con for some small business owners, depending on how big of a percentage they are asking.
The pros of making a deal with a VC is that when they buy a piece of your company, they are also taking on the risk that they may never see a return on their investment. A VC will take a chance on you, and risk a loss.
Don’t make hasty decisions, growth is great, but you don’t want to burn out your business by growing too fast, too quickly. Just because you have an independent business doesn’t mean you are alone.