What is the difference between having a bank loan and having an equity investor putting the money into your business?
Equity Investment versus a Bank Loan – What you need to know
Equity investing versus a bank loan.
From the debt perspective lenders are principally interested to get the principle repaid as well as a rate of interest. They are not concerned about any ups that can be generated and as a result of that they are concerned about the downside.
There’s a risk aversion and the loan sits fairly high up in the capital structure and is secured through the assets of the company.
Equity investors on the other side, are very much interested in the upside. They are trained in making decisions when you have risk reward trade-offs. There’s an acknowledgement that the equity upside is not a given number but is something that can be influenced for the right strategy as well as the right management team to execute that strategy.
And it sees areas where an equity investor would like to involved and spend most of his time, not by taking on executive responsibilities themselves, but by taking a role on the Board and by the virtue of being a shareholder in the company.
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