# Financial Bank Loan for Equity Funds : Which is Better for Business ?

Posted on the 20 November 2011 by Mihir23192 @mihir23192

There are many people out there who want to start their own business but sometimes they don’t have money to invest in own ideas. Here I am writing an article which will tell you whether you should go for a bank loan or equity funds like venture capital, partnership or other. I am figuring out some topics which is required to be considered if you are taking this business seriously and long-term. So.. Read On….!

There are two types of people 1) those are having assets from which they can obtain loan from bank by giving mortgage, and 2) of even don’t have assets for collateral.  In first, There will be some people who dont want to take risk on their assets and they would not like to go for a loan.

I personally prefer, If you are having a scalable business, means If you believe that this business will perform well in the market and reasonably fetch 20-25% return on Investment then you should surely go for a loan, no Doubt about it. IF you involves some one in your company’s equity in return of taking money to start your business then this is the dumbest thing you are doing.

Instead of that, Suppose you raised money from bank by paying 15% interest, In that case you are the 100% owner of the company and you are working for 100% but getting more than 100%. Do you know How?? It’s Math.

Situation A:

Your Money : 8,000 \$ || Friends Money : 7,000\$ || Return on Investment : 25%

So Total Annual return = (15,000\$ * 25%) = 3,750\$

Out of this 3,750\$ your share = (3,750\$ * (8,000\$/15,000\$)) = 2,000\$

It means you are working for 3750\$ and getting only 2000\$. It means 2000\$/3750\$= 53.33% Return on Efficiency.

Situation 2 :

Your Money : 8,000\$ || Bank Money : 7,000\$ || Return on Investment : 25%

So Total Annual return = (15,000\$ * 25%) = 3,750\$

Out of this 3,750\$ your share = (3,750\$ – (7,000*15%) = 2,700\$

It means you are working for 3750\$ and getting 2700\$. It means 2700\$/3750\$ = 72% Return on Efficiency.

Your Return on Efficiency will be 100% when you will pay bank loan and Interest Cost will be Null.

If you don’t have resources of loan then It’s okay to go for equity but, Again, you will have to be ready to work for others… SImple..