What’s the difference between lenders and investors?

BDC | Mallory McKewen | Mar 1, 2022

Early stage loans vs equity - What’s the difference between lenders and investors?Debt financing has advantages for early-stage firms. But preparing a loan request is very different than pitching an equity investor.

Here’s a typical path for many early-stage firms. The company is seeking funds to scale, grow or develop a new business line. The first instinct is often to prepare a pitch for equity financing from venture capital or other investors.

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At some point, the company hears about the benefits of debt financing. A loan is non-dilutive, usually cheaper than equity and preserves control. It’s also generally available more quickly and can come with flexible repayment terms.

Lenders want to see proof they will get repaid

The fact is that forecasts are important not only for a loan application, but also for running your business. They show ups and downs in your cash flow and help you anticipate when you could be short of funds to pay bills or payroll.

Here's a cash flow projection tool

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Investors Lenders
The pitch Needs to be exciting with a focus on growth potential, hungry founders and an inspiring story. Want to see proof that the company has the means to repay the loan. Should include a detailed and realistic cash flow forecast, as well as accountant-reviewed financial statements or a tax assessment for the previous year.
Financial projections Often stretch out to five years and are broken down by year. Projections should be broken down by month and go out one or two years. Should adjust for seasonality and scenarios.

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