Evaluate suitable sources of finance for new and established businesses.

Direct answer

A bank loan offers a lower cost of capital and preserves ownership, but it requires collateral and fixed repayments that can strain cash flow during rapid growth. Equity investment provides capital without repayment obligations and can bring strategic partners, but it dilutes ownership and may influence control. For a business that expects high growth and uncertain cash flow, equity investment is often more suitable because it reduces financial risk and can provide expertise. If the business has strong cash flow and collateral, a bank loan could be preferable to avoid dilution.

How it works

The evaluation considers cost of capital, ownership dilution, repayment obligations, cash flow impact, and strategic benefits. The recommendation balances these factors and acknowledges that the best choice depends on the business’s specific circumstances.