Are you an entrepreneur in the initial phase or are you already generating high sales with your company? Are you striving for further development or do you want to focus more clearly on individual business areas? Perhaps you would also like to establish your company on the international market in the next few years? Large corporate goals generally require large financial resources so that they can really be achieved. There are some ways of financing, such as a loan or private investor. But what about the advantages and disadvantages of both variants and what is the difference between an investor and a bank loan? The following guide should give you an overview of which form of financing is the best choice for you.
Business at a standstill or growth?
As an entrepreneur, you will know which day-to-day tasks a management is confronted with and how the ups and downs of a company are. Depending on the order situation, the supply and the demand, stagnation can occur again and again. In the course of ever more intelligent technologies and digitization, it can mean “death” for a company if these changes are not carried out hand in hand. New ideas are needed, existing products optimized and a wide variety of marketing strategies pursued.
In order for you to continue to exist on the market with your company and even to build yourself up further, you need some financial means. It is good for those who do not need any outside capital. However, the latter is rarely the case, so most business financing is done on the basis of a loan or a private investor. But what’s the difference between an investor and a bank loan?
Loan or private investor – what is the right way of financing?
If financing is required, regardless of the project, then a loan is usually the first thought and represents the classic way. If you have nothing to oppose monthly fixed repayment rates over a fixed term and you have appropriate collateral for credit protection, then are two essential points for a bank loan. At this point, you should certainly also consider that if you are faced with the choice between a loan or a private investor, you have to be financially committed to the bank for a very long period of time.
In order to be able to obtain a loan from a bank at all, various conditions must also be met. A first difference between an investor and a bank loan can therefore be made here. As a rule, private investors attach very different requirements to the awarding of their financial contribution than is the case with a classic loan from a bank.
Loan or private investor – conditions of the bank
Banks take a very close look at the granting of their loans and credits and expect you as a borrower to meet special conditions, such as
- clean credit record
- appropriate creditworthiness in connection with creditworthiness
Self-employed people in particular often find it very difficult to obtain a loan from banks. If a bad credit record is added, it is almost impossible to get a company loan here. You still have the option of applying for a loan without credit record. However, this loan usually has worse conditions for the borrower.
Loan or private investor – The difference between an investor and a bank loan
Private investors are a lucrative alternative to banks in the area of loans. The main difference between investor and bank loan lies in the fact that the private investor is a single private person. In the background there is no huge bank with fixed rules and non-negotiable conditions. A private investor acts solely in his own interest for the purpose of profitable and sensible investment. With increasing interest rates and fluctuating bonds, more and more private individuals are looking for alternatives to investment. Capital that does not work is not profitable and therefore does not increase accordingly. Of course, those who have capital at their disposal do not want this fact, which is why many loans now come from private investors.
You negotiate with a private investor on a completely different basis and above all at eye level, which in turn is a massive difference between investor and bank loan. If you have the question of credit or a private investor, then you should definitely use a pro and contra list.