While venture capital is definitely not the only great answer to financing needs businesses have, when compared to regular bank loans, venture capital does stand out as advantageous in various different circumstances. Matias Campiani, a true specialist in financing options for entrepreneurs, talks about the main advantages venture capital has over bank loans.
Comparing Venture Capital And Bank Loans
When you want to take a step forward with your business you normally need an investment. Generally, there are 2 main financial routes you would take. The very first one is the bank loan. The second one is venture capital, which is also known as private equity.
When you look for a bank loan, you have to prove that you are in a really good financial standing. Business credit score is considered and you will need to be sure that you can prove that everything will go well. Basically, the bank will only give you a loan in the event that you are in a really good financial standing and you prove, without a shadow of a doubt that the loan can be repaid according to the agreed terms.
Unfortunately, traditional banks are more difficult to deal with than ever. It is hard to deal with everything that banks ask. For instance, you might think everything goes great and you repay the entire amount but then end up having to pay extra fees because of who knows what contract breach. Covenants are intensely scrutinized by analysts that want to quickly make more money for the bank.
The alternative of finding investors is something you absolutely need to take into account. While it is not that easy to find venture capital these days, it is still a lot better than the traditional bank loan.
A really important thing to consider is working with venture capitalists that have a lot of experience, especially in the industry you operate in. If you work with a great capitalist you basically gain a partner that has huge practical experience and insights.
These specialists will give you access to mentoring and advice, which is paramount for future success. Expertise is particularly important in terms of getting strategic advice, succession planning, exit planning and management infrastructure. Capitalists will tell you what you are doing wrong and what you are doing right. Equity value is going to be quickly unlocked.
Working with a really good venture capital partner helps you actually understand the business. All your business decisions are going to be more informed and you will truly understand assets you have access to.
Obviously, you will get access to financing in the event that you work with venture capital. However, if at a later point in time you need more support, you will get it from the venture capitalist through increased investments.
Venture capital is definitely something that you have to consider, especially when you have problems getting money from the bank. You want to consider advantages and get help to grow businesses, especially when you do not have experience.