In the modern business world, both financial intelligence and awareness are key factors in building wealth, and developing the financial stability needed to thrive. At some juncture, alternative financing may be necessary for any number of reasons, be it expansion and continued growth, or transitory budgeting during tighter fiscal times.
When this occurs, the option between investing or seeking a business loan can make or break a company’s future, and knowing the differences between the two can directly affect profitability and reconciliation needs.
What are investments?
Companies and small businesses often make investments in the likelihood that their eventual maturation will increase the company’s overall wealth and value. In diversifying sources of revenue and properly aligning a steady budget, there will come a time when many businesses may consider creating an investment portfolio for exactly that purpose. In a nutshell, an investment is a form of asset purchased in the hope that it will accrue value and generate income in the future. When investments are made by a company, it is specifically with the intention of future profit creation as opposed to immediate use.
There are elements to consider, however, such as the minimum investment required, or which investment opportunity meets the company’s specific needs. However, there are resources that will help you find and source investments to build up your portfolio. One such example is ReconArt, a single-solution technology company that provides a modern, enterprise-class platform to all industries and business sizes. There are also outside sources for researching alternative investments. For example, looking for current Yieldstreet reviews, potential investors may use this reputable investment platform for setting such financial goals according to current stock market trends.
What are loans?
In the event that company doesn’t meet the qualifications of an accredited investor, there are still funding alternatives. One of the most common solutions is seeking a business loan from reputable financial services.
Simply put, a loan is one entity granting funds to another entity for temporary use. Such loaned monetary funds can provider the borrower with investment spending or other necessary expenditures. Commonly, many loans are used to buy fixed assets like real estate as a form of alternative investing, or supply the necessary funding for expansion and other similar projects. As the original lender charges a fixed interest rate on the loan, as well as an agreed upon asset as collateral, the increased value of the investment can bring lucrative profits to both parties, thus added to their net worth.
Loans can provide businesses with the fighting chance that they need to stay ahead and, ultimately, reach a higher level of success. Since business loans are a common solution for many companies, they are often in high demand, thus making them highly competitive to attain. As a result, not every business get their application approved.
During a loan application process, lenders evaluate the potential borrower’s history, particularly any outstanding debts. Risky businesses, such as startup companies, hold a higher risk of borrower default and therefore are not often the recipients of traditional commercial loans.
What is the difference (and how can they help you)?
At first glance, investments and loans seem to have very different characteristics as potential sources of immediate revenue or expenditure budget. However, after a proper amount of due diligence, it’s clear that the goal always remains the same: eventual profitability from the borrower or investor. Additionally, quite a lot of investment is done through lending. For example, a company may borrow to increase their budget for much-needed expenditures and still be legitimately described as “investment.”
When deciding between these two options, a business must consider a few crucial factors. In the instance of a relatively new company, any investments made on its behalf could benefit from long-term expectations and a wider timeframe in which to see results. In essence, time is on the business’ side. For an established business, however, a steady cash-flow and solid credit rating may help in scoring a fast turnaround for a loan agreement and lower interest rates.
Reconciliation of investments and loans
Whether a company opts to make a substantial investment for future gains or to take out a commercial loan, there will always be the need to compare the numbers along the dotted line. As investment managers maintain records for performance measurement, as well as client support, it cannot be assumed that one set of records is “correct (or “incorrect”) at face value. An investment manager’s records must focus on accurate trading and performance measurement, whether the business is comparing investment funds, or a budget amassed through loans.
For investment managers, a reconciliation of investment records typically means comparing those numbers. As described by ReconArt, their state-of-the-art reconciliation software platform is ideal in meeting those comparative needs, as seen at reconart.com.When considering loans, the process has a few similarities. ReconArt’s integrated functionality supports all aspects of the reconciliation lifecycle–everything from administrative management and data integration, to comprehensive, fully auditable balance sheet reconciliation, and other supporting functionality. As described, whether a company has opted for investments or loans, the numbers still need to balance out, and this applies to both investment houses and financial lenders as well.
What about a bridge loan?
To put it succinctly, a bridge loan is a form of hard money loan, granted specifically for a company’s transitional period. Bridge loans are usually a viable option when a company is between long-term financing.
Some common uses for bridge loans include eliminating tax liens, budgeting employee payroll, the expansion of new projects, and replenishing inventory. Many companies also utilize bridge loans for such common time-sensitive issues, such as real estate acquisitions. Additionally, bridge loan funds can be obtained faster than traditional long-term financing. Many lenders require lenient qualifications for businesses looking to take out a hard money loan, especially those with good credit and strong financial standing.
As noted above, applications for these types of loans are often streamlined, making the much-needed cash readily available to the borrower. Some companies even receive same-day approval. Considering that most traditional long-term loans can take days or even weeks to be processed, a company in dire need of funding may find this reason enough to choose a bridge loan over other options. Additionally, some lenders grant the ability for the borrower to switch over to long-term financing in the future, offering lower interest rates and fewer fees.
Every business has its own unique needs and circumstances when it comes to seeking alternative financing. Before choosing between any form of additional funding, it is always beneficial for a business to consult a reputable financial institution or agency in crafting a sound investment strategy. While Yieldstreet is an excellent investment platform, Northwest Private Lending offers their own clientele bridge loans Oregon based, and provide copious amounts of information on the “hard money” option right on their website.
A final note to add is that, whilst successful businesses will have their pick over any investment or loan, that doesn’t necessarily work the other way around. For an investment to work, particularly from a higher earning broker, the company has to be picked by the investors as well. If debts have accrued and the company is showing signs of any financial problems, an investor–or a lender– will simply not do business with them. Investments and loans are essentially two-way streets.