We hope to provide great educational value with this article. Surprisingly enough, there are many people out there who cannot seem to differentiate between a loan and investment, so we are going to highlight all the differences between the two.
You need to return the loan.
You do not return the investment while a lender is entitled to the return of the money lent to an individual/business, plus interest which was determined by the agreed-upon rate. The investor is NOT entitled to a return on his investment.
Loans come with interest.
As we briefly mentioned above, there are no interest rates when it comes to investing. The lender has to repay the loan over a specified period of time with added interest.
The investor takes a stake in the business.
The investor can suffer a loss if the business isn’t doing well or he can make a profit if the business IS doing well. People that take loans have no interest in the lender’s financial situations.
Investor can have a significant amount of leverage in the business.
Entirely depended on the contract and the amount of investment, but some stakeholders can actively steer the business in the direction of their choice. With the voting rights, the investors can influence the decision-making process on a company-wide level. The investor has no say in this matter.
Credit history matters to the investor.
Investors don’t generally invest in businesses that aren’t performing well financially or have a history of bad statistics. With the introduction of bad credit payday loans, anyone (even with bad credit history) can get their loan approved.
A lender gets priority return of capital.
Only if the business goes bankrupt/gets liquidated or runs into serious financial trouble. Contrary to what many believe, the investors are at the very bottom of the list.
There’s a definite date when and how the money is returned for the loan.
With an investment, an investor can’t know for sure when (and if) the money will be returned in full. With a loan, everybody knows the specific dates, rates, terms, and conditions.