The need to thrive personally and professionally requires a certain level of resource infusion to keep a business going. With reasons varying from expansion to financing recurrent projects, there are many different ways of financing a business. Taking a line of credit and seeking investments are some of the most common methods of business financing.
The two forms of financing have their own benefits and challenges, which is why critical analysis is required to determine the better-suited option. Below are factors to consider before choosing an appropriate source of funds.
Terms of Financing
The contents of your written agreement can determine the decision on where to seek financing. Simple Path Financial and other lending avenues detail the amount, time, and rate of recouping the loan in their loan agreement. Creditors usually have standardized terms for all clients accessing their services, unlike investors who are likely to dictate their own terms.
Before settling on a mode of financing, you should consider the associated costs and risks. Different financial sources require different commitments and concessions to be made in exchange for a loan. Your business and personal risk factors affect the level of concessions, which lenders and investors adjust accordingly.
Some associated costs are in the form of interest rates, restrictions in the loan agreement for a line of credit, and concessions in the form of control and stock options for investors.
Reason for Financing
The amount and purpose for the finances in the first place should play an integral part in determining the mode of financing. Seeking out investors is better suited for financing capital expenditure projects while lending is more suitable for revenue expenditure.
The different sources of finances have their various advantages and limitation. Besides financing through credit or investors, your business can opt for alternative ways of financing projects, such as stock-piling of in-house reserves and liquidation of dispensable assets.