Q & A – Company Funding

Taking on a partner just for the financial resources he can bring into the business, can be a very expensive experience in the long run. Although very attractive in the initial stages of the operations, over the years such financing arrangement may start to appear as a heavy burden to bear.

The partner would want a fair return for his investment which would normally be higher than current bank interest rates in view of the inherent risks to this capital. What is more, since he is sharing in the risks of the venture, he may also request that he shares in the decision making process which you may consider as unacceptable interference.

If the business proposal is backed by a solid business plan we would suggest bank finance as a better alternative for the following major reasons:

  • It has a predetermined cost in the form of bank interest.
  • Such cost is normally cheaper than what an investor would expect.
  • Once the bank finance is repaid, you will have regained full ownership of your operations
  • Banks normally do not get involved in your day to day business decision process.

That said, however, all this also depends on your credit capacity, that is the maximum amount you can possible borrow. It also depends on the vision and strategic objectives of your company. If you are looking at a growth strategy, than you will probably have to trade-off a certain amount of control for the cash injection by taking on a partner. At the end the returns on your investment should not diminish if your home work is right. Be careful however with interpersonal and culture issues.