You have a business plan in place. You are ready to take the flight of success. What is the first thing that you need to plan? Financing yourself and your “start-up baby” However, you may be reluctant to approach banks for loans. Do not worry. Here is our guide to helping you with business financing and letting you know about venture capital and business loans.
What exactly is venture capital?
Venture capital also referred to as “VC,” is the financing obtained in exchange for ownership or equity in a company. Investors, also known as “venture capitalists,” make investments in companies with high growth potential. They offer you financial assistance while also sharing profits with you. This financing is more suitable for you if you are in the early stages of entrepreneurship.
Benefits of Venture Capital
Here is why venture capital may prove a boon for you as someone who is looking for financing for his or her business:
- Hassle-Free Borrowing- While lenders and banks may be reluctant to finance your dreams at an early stage, venture capitalists extend their helping hand when you need them the most.
- Access to finance ‘Gurus’ and their guidance– Along with financing, comes the guidance of skilled venture capitalists. Isn’t that a little something extra, good, and much needed?
- Say ‘bye-bye’ to debt repayment worries– If your dream project fails to take flight, the VCs simply lose their investment. You will never have to worry about debt repayment, even in times of crisis.
- No security needed– Banks and financial institutions require security before giving you financial assistance. You do not need to keep any assets as collateral with the VCs to obtain funds.
- Let’s get ‘networking‘- Access to experts in the industry also gives you instantly what may take years to build: networking.
What exactly is a business loan?
A business loan is a debt that can be secured or unsecured. It is an agreement between you and the lender whereby you agree on the terms of repayment of the loan. The loan has to be repaid by you within the time stipulated. The amount of interest is also agreed upon by both parties. Here are some types of business loans:
- Term Loans
- Business lines of credit
- Equipment Financing
- Investment Financing
- Commercial Real Estate Loans
- Micro Loans
Benefits of a Business Loan
- Control and Flexibility– Your creative control stays in your hand on how you want to navigate your company. You have full control, and you are the decision-maker.
- Effortless access to finance- You do not need to waste your time looking for fancy cafes to take your investors out for multiple coffee dates. Just one meeting and you will have enough money to finance yourself.
- Reasonable Interest Rates– Financial Institutions are waging war for your attention! This makes the interest rates very reasonable.
- No sharing of ‘success bites’– You, and only you, will rule over your profits. There is no profit sharing when you go for business loans.
- Liquidity Crunch? Not anymore- You do not need to break into your emergency funds to overcome the shortage of liquidity.
- Tax Benefits- You are often eligible for tax deductions on the interest amount. It is best to check your eligibility when you apply for a business loan.
- Creditworthiness– You just have to repay the loan on time. This improves your credit score and reflects your creditworthiness. This may help you in the future when you apply for a loan at any other financial institution.
What are the benefits of seeking venture capital vs. a business loan?
If you go for venture capital financing, you lose creative control over your dreams. The finance also comes in exchange for equity (ownership) in your company. On the other hand, there is no need to worry about debt repayment.
In the case of business loans, there is a creation of debt which may discourage you from going ahead with this financing option. However, the risk is an inevitable ingredient in the recipe for success. You may also want to take another look at the benefits that come with business loans. They provide you with complete control over profits and decision-making for your dream projects.
Whichever mode of financing you choose, some perks come with both of them. In the case of business loans, you will feel motivated to work harder to work for your dreams. You will create a network for yourself while establishing your trustworthiness in the market.
Final Take Away
As a start-up parent, both options can resolve your liquidity crunch. However, there are certain things you may have to keep in mind while opting for a suitable financing option:
As an entrepreneur, it is up to you whether, during the initial take-off of your dreams, you wish to keep your assets as collateral or not. In the event of the non-success of your venture, your assets may be liquidated in the case of a business loan. However, you may stay stress-free!
The risks involved with the success and failure of your dreams in the initial stages of a start-up are very high. Hence, you should be mindful of whether you wish to create the debt or not. The creation of debt comes with the pressures of repayment of losing your assets in case of failure in case of business loans.
There are pros to both venture capital and business loans. While venture capital-type financing comes with access to a master in the field, business loans come with tax deductions. You may go for any of these depending on your necessities.
No matter which type of financing you may move ahead with, it is always necessary to also decide whether you want to lose creative control over your dream project. You might also be hesitant to share your profits in venture capital-style financing. Visit Piramal Finance’s website to learn more about venture capital and business loans.