Is equity investment an attractive alternative to business loans for start-ups?

So you’ve reached the point where you need an injection of money to grow your business. Start up funding comes in so many shapes and sizes, but the common approaches are either to seek a loan, or to approach an angel investor for equity funding. What are the pros and cons of each of these types of small business funding?

Seeking an angel investor who is the right match for your business can be a lengthier process than seeking small business funding through a loan, but ultimately the rewards can be much richer.

You often get guidance and support from investors

Approaching angel investors with your business idea can be an immensely rewarding experience, not least because angel investors often offer business support and feedback, both at the pitching stage, and at the stage of being investors with a stake in your business. Sometimes this experience and support is the key to the success of the business.

You don’t have to pay back the loan with an angel’s equity investment

The obvious difference between an angel investor and a loan is that you don’t have ‘payback time’ hanging over your head.

You could benefit from having another person on board.

Do you feel you strongly that you might lose part of your business and your creative ideas to someone else? Or would you value input and get benefit having an investor and a partner around. The likelihood is that an investor will bring knowledge and experience to your business. It is therefore important that you choose your investor wisely.

When is it best to get a small business loan?

You will be given a certain amount of money, with a payment plan for paying off the money at various stages. This is usually the preferred option if you already have a reliable income stream for the business. This is also the preferred route for those who feel they don’t need business support, don’t want to lose their creative ideas to a partner, and don’t want to share their business with someone else.

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