After the initial startup phase, most small companies will come to a point where they need a blast of cash to keep business flowing on an upward trajectory. It may be that the firm needs to invest in equipment, more inventory, or additional staff. Whatever the reason, getting a hold of more money is essential. Small business loans and venture capital (VC) are two of the most talked-about ways of securing funds.
Here’s how they stack up against each other:
Small Business Loan
Pros
Taking out a loan with a bank or other lender allows you to maintain complete ownership of your company and still get a cash infusion. The lender will not have a say in how you run your business or use the funds. Obtaining financing from a bank also requires a much shorter timetable than VC. With a small business loan, you could receive the money within just a matter of weeks.
Cons
Bank loans typically require collateral, and putting either personal or company assets on the line can be scary. If you cannot follow through on the loan terms because your business fails or you have some personal setbacks, you will still be responsible for the full repayment of the loan.
Venture Capital
Pros
Money from venture capitalists typically does not have to be repaid if your company goes under. They assume the risk when they invest. Also, finding the right VC can also bring with it valuable mentorship to help your business make the right choices.
Cons
It can take months or even years to connect with the right VC partner. Even after you make a deal, it may take longer than a bank loan for the money to arrive. And of course, with VC you will usually be giving up some control of your company with plenty of advice (sometimes unwanted) about how to run your firm.
It’s up to you to choose between small business loans and venture capital.
