Building a startup demands much more than a brilliant idea. It is also about determination, time, dedication, discipline, and, most importantly-finances. There is no surprise that many businesses dip in revenue. In fact, most startups fail because of problems with proper cash flow.
To alleviate most of the financial stress, series funding and periodic business loans are two common types of funding for startups. However, how do you decide which one is right for your business? Here is a closer look at the differences between the two that will help you to make a well-informed decision for your business needs.
Differences Between Series Funding and Periodic Loans
Below you will get to know about the differences between series funding and periodic loans, as well as the benefits and disadvantages of both.
Series Funding
Series funding for startups refers to the various stages of funding given by investors that are typically high-net-worth individuals or institutions and interested in the particular business. This helps the startup throughout its operation lifecycle, from ideation to reaching the point of IPO (Initial Public Offerings) or acquisition by bigger companies. Thus, this type of financing is a great option for many businesses as it is designed majorly for startups with an unpredictable cash flow and not much brand presence yet.
Pros of Series Funding
- With the series funding, the business is not expected to repay the funds they receive, whether you have a success or failure. Instead, the investor asks for equity in the business. So, it is essentially a trade or transaction that’s settled upon receiving the funds and providing the equity.
- Beneficial for startups as investors look for businesses that are still in the planning stages and looking forward to long-term growth.
- Investors often have vast business experience and an extensive network. Therefore, they can perfectly mentor you in the journey of business growth.
Cons of Series Funding
- The process of raising funds might be a difficult process for entrepreneurs.
- Investors will take a portion of the stake in your business.
Business Periodic Loans
Business periodic loan type of financing can be a great option for businesses that already have a strong brand presence and need predictable cash flow. The business needs credibility and confidence to show that it will be able to pay the loans without any failures.
Pros of Business Loans
- You can use the business loan in the way it seems to fit your business growth without having to seek advice from investors.
- Here you don’t have to share profits with the investors.
- The business loans enable you to retain full company ownership as long as you pay the loan off.
Cons of Business Loans
- If you’re a new business owner, you might not be able to produce revenue if your business doesn’t perform. So, you could have trouble paying the loan on time. This can put your business in danger of having to close down.
- The interest you accrue on the money you borrow could end up being quite high, so it’s important to be mindful of that when taking out a loan.
- Business loans require some type of collateral to secure the loan. If the business fails, then you are responsible for repaying the loan.
- It is difficult for business owners to get a loan with poor or non-existent credit.
Key Takeaways
As a business owner, you’ll need to decide whether series funding or a periodic business loan makes better sense for you and your needs. Consider your options carefully before making a decision – each has its own set of pros and cons that you’ll need to take into account.
Series funding may offer more flexible terms and quicker access to funding, but it also comes with the potential for more control from investors. A business loan may have stricter terms, but it can provide you with more predictable payments and may be easier to obtain if you have a strong business plan.
If you are looking for series funding for your D2C business, Velocity is one of India’s largest revenue based financing platform that is seamlessly helping D2C brands to grow their business. You can apply on their website and get equity funding in a week! Contact them to know more!
