BANK LOAN VS VENTURE CAPITAL

Bank Loan VS Venture Capital

Before you choose whether to go get a bank loan or seek for a VCs, let’s make a quick comparison on both bank loan and venture capital. Bank loan require an APR which stands for Annual percentage rate. This is an interest rate quoted by bank in their loan document. On the other hand VCs doesn’t have one, which is equity while bank is debt. The APR for small business will depend on the length of time the company has been operating, the revenue, operating profit, net profit. Consistency makes the numbers more predictable and the bankers more confident they’ll be repaid. That, of course, assumes that the market and industry are relatively stable. So bankers seek a guaranteed return on their investment (loan) in a business. Venture Capital however it’s a win or lose proposition. The either make a return because the business is successful and is later sold or it will go to the public, or they don’t because the business goes bankrupt or it shut down. VCs measure their returns as a function of the company’s future performance. Unlike in bank loan either the term or the repayment amount is known in advance.

The benefit on bank loan is that as you pay down your loan you build creditworthiness. This makes you more attractive to lenders and increases your chances of negotiating favorable loan terms in the future. While VCs can be passive or active, passive investor are willing to give you capital but will play little or no part in running the company, while active investors expect to be heavily involved in the company’s operations. Carefully consider whether or not you are compatible, as this person will own a portion of your business.

One of the most important tools when deciding on what type of business loan your company needs is research. Researching the different types of loans available to you and your company can save you money. Business loans are hard to get, but with the right combination of perseverance, passion, dedication, and conviction in your business plan, they are not impossible after all.

More detailed information and useful advice can be found at http://www.funded.com/ Created by Mark Favre, it offers expertise and assistance with developing and funding your concept, including a private forum for queries and discussions. If you need access to investors and funding providers, please do check out http://www.funded.com/.