In the life of a business, funding is a main component that a business will always need. From start up until full blown operations, there will be phases in a business’ life cycle to require funding. This can be for operation, growth, or even acquisition. Funding is an essential need for a business to ensure business continuity during adversities and opportunities.
There are several ways of acquiring funding for a business but the two most common ways is getting an investor to fund the business or by getting a business loan. A business loan is often an option chosen by most businessmen and proves to be a better option for them. If the business does not require fast paced growth, then business loan can be the best option to be taken. Here are the reasons why business loan is the best option to take.
- A business loan does not share controlling interest and decision making.
When business loans are opted by a businessman, there is no ownership that is being transferred to the lender. Unlike sourcing funding from investors, lenders expect to get paid regardless of the revenue of the business. On the other hand, investors get a share of the earnings which is quite bigger than what a lender expects to get paid.
- A business loan does not grant the lender bonuses on revenue earnings.
Because a business loan is strictly after payment, the borrower is not required to give the lender any portion of the earnings of the business, regardless if the loan is used for growing revenue. When a business acquires funding from an investor, the investor gets bonuses and the earnings is dependent on the revenue the company has obtained.
- Financial management is much easier and simpler in books rather than managing equity.
On the books of the company, it is easier to keep track of a loan with a fixed payment amortization and rate. Tracking will only be made during the fixed period. Unlike with equity owners, separate books might be needed to be created to ensure that proper reporting is maintained.