Loan vs Investor?

[FFL]

Hi all,

I am in the early days of my business plan and the one area I'm struggling with is initial funding, so thought I'd ask you for your opinions. My immediate thought was to approach a bank for a business start up loan. But then I don't know what the pros/cons are of a loan versus an investment; and even if investment is the answer I don't know who to turn to or how to advertise for this.

So far I have a company name (ltd) registered earlier this year with companies house and a domain address. The company will be a pet supplies retail business and online only.

Can anyone offer any advice for this, as to what will be the safest, lowest risk and best route of achieving funding?

Many thanks

 

[Bryan_Centurica]

I've been asked that question many times and my answer has always been that you should take a loan, *unless* there are additional benefits in getting an investor involved (more on that later).

There are various pros that a loan has over an investment, mainly:

1) No bank will give you a loan unless you have a decent business plan, giving you an extra layer of security in the bank going through your business plan (we all tend to think our ideas are fantastic but a person who isn't directly involved can often crush those ideas in a heartbeat)

2) Getting a loan will commit yourself (assuming that you're a guarantor to the loan, you'll have to keep making the monthly payments regardless of whether your business succeeds or not), which means that you're likely to try much harder to make things work as you have something very real to lose.

3) Most importantly, this way you'll still retain 100% equity whereas if you involved an investor, you would be required to give a part of it away for good, and if the business succeed then you'll end up paying MUCH more than the 10% yearly interest rate on your loan.

Now, all of the above applies only to a 1-to-1 comparison. An important thing to bear in mind is that involving the *RIGHT* investor can often be the best thing you can possibly do - but note my emphasis on the word "right". If you have someone who is ready to invest in your business and also become your business partner (or an advisor), and possesses skills and knowledge that the company would benefit from then it can often make perfect sense to get this person involved, regardless of the fact that getting a loan would be the "cheaper" solution.

Hope this helps.

 

[businessfunding]

Tbh it is wildly optimistic to assume a bank will give any constructive feedback or consideration to your business plan. At best they will skim read it and run the numbers through some modelling software

They will be primarily interested in your experience, your banking history and what you can offer by way of security

Only you can decide which option is best for you but a synopsis is;

A loan is a simple commercial transaction. The lender will want to be comfortable that you can repay and will most likely seek back-up security. Having met criteria they will advance money and leave you to get on with it

Investment is more of a partnership - the investor will want some degree of personal input - ranging from occasional reviews to full hands-on management.

Financially they will want to share the rewards potentially by way of fees, dividends and exit

As has been said, good investment can add a hell of a lot of value to your business - particularly if rewards are delayed and large

 

[Stephen Soos]

This is an interesting and thought inspiring thread because a lot of Entrepreneurs face this challenge at the start, and it can be daunting. To get a loan would normally require some sort of security, usually property. This can be a stumbling block for most people for a variety or reasons.

I chose the investor route and it worked for my company. We grew from nothing to IPO last month, which was just 9 short months from start, and have a market valuation of £15m GPB.

I tried investor forums, Angel networks etc and it was arduous and unrewarding. Success came by way of banging on the doors of potential clients, making sales, pitching to high net worth individuals and securing small investments, which led to larger stakes being bought and finally, our listing on the markets.

It is not easy, it is hard, but rightly so because your business model needs to stand up for people with money to take notice.

Your passion will fuel you, and it must be infectious. Don't give up, don't stop, ignore the bountiful "nay-sayers" and march on with your vision firmly fixed in your mind at all times. Get good mentors and advisors, they are worth more than the money you pay them. Get them to work on a contingent basis if your model is good. These people are clever and will see an opportunity if one exists.

Pursue, persevere and keep going. Do not be denied. One last tip. Invest more in your own development than you have ever done before. If you ignore everything else in this post, this last tip is the golden nugget.

Some sources : The Science of getting Rich - Wallace D Wattles
Think and grow rich - Napoleon Hill


Make these titles and more your bibles. Don't read them, know them and practice what you learn. Maybe you can then realise your ultimate goals.

Good luck to you.

Stephen Soos

Final thought, read and absurd "Compensation" by Emerson.