There is a world of difference between lenders and investors. While both can supply you with startup or expansion cash for your small business, they have very different expectations of you in return.
Investor Expectations –
Investors are actually buying a portion of your company. Rather than just letting you borrow their money. This means that they’re much more interested in your long-term profit margins. Not just your expected profit margins for the period that it will take to pay back the original investment.
Your investors will also have a say in how you spend funds, what you do with your business overall, etc…
Lender Expectations –
When you take out a loan, you’re essentially just borrowing the lender’s money. They’ll obviously expect you to repay them for what they lend to you, but they have no other involvement in your day to day business.
As long as you can make your monthly payments on your business loan, your lender doesn’t care what else you’re doing. The average business loan takes between 1-10 years to pay off. Outside of that window a lender is no longer invested in your business. This is a rough draft of some of the documents needed. Typically, it varies from lender to lender. Lenders are people who offer capital/funds to someone or their business with the expectancy of those funds to be paid back. The most common type of lender are mortgage bankers, retail lenders, warehouse lenders, etc.
Mortgage lenders: tend to either be banks or some financial institution/center. They offer money/funding to someone who wants to purchase a home.
Investors are people who put money towards a product or entity with the expectation of generating a larger benefit or financial return in the future. Additionally, investing is a long term practice. Those involved tend to take a smaller risk for a larger gain.There are a few different types of investors: passive investors & active investors.
Passive Investing –
A safer method of investing. This is more of a buy-and-hold tactic which limits the amount of turnover by following the index.
Active Investing –
A riskier method of investing. Involves a constant buying/selling strategy. Investors can either invest under their own personal account (retail investors), or those who invest in a start-up (angel investors), or those who invest in private companies. Individuals can also become investors themselves by building a portfolio and having sufficient funding to have the ability to invest in an individual, or a business entity.