The Difference Between An Investor And Financing

As a business owner, you believe in your business. You have a vision for your company. The goals that you’re working toward are constantly at the forefront of your mind. You’re willing to work hard for the success you’ve been dreaming about. This is your livelihood. More importantly, this is your life! In many cases, there’s a lot at stake for you, and you’re committed to doing whatever it takes to make this work. This is the way it should be.

Because of your passion and commitment to your business, it can be difficult to understand the perspective of a financier. When you’re looking for financing options, you expect that the financing companies will see the potential of your business and that they will want to get behind you.

Investor vs. Financing

Are you looking for financing or an investor? There’s a difference.

An investor wants your business to grow. They believe in your business. More specifically, they believe in the future of your business. They are willing to invest now so that they can continue profiting in the future. They are taking more of a long-term view. Typically, an investor owns a chunk of your business; they become a partner. An investor gets a piece of your future growth and is willing to accept the risk of losing their money if things don’t go the way you plan.

On the other hand, a financing agreement like an equipment lease or bank loan, is not an investment in your business. Even though a financier wants future business from you, they are aiming at making their return on investment based on this current deal (lease or loan). Your future earning potential is not as important to the credit decision-maker as much as the past performance of your business. They are wondering, “Can we count on you to make your payments even if this new piece of equipment doesn’t generate a single extra dollar?” The financier is basing their risk on your current state. They do not get a piece of your future growth – they only get what the contract says, regardless of how successful your business becomes.

What It Looks Like To Them

It is unrealistic to expect somebody to believe in your future and invest in your company without having any offset for that risk. While it’s perfectly valid to want to grow your business and make an investment, you need to understand what you’re asking people to do.

Let’s assume that you are looking for financing to purchase a new piece of equipment that will enable your business to accept a large contract. Purchasing this piece of equipment makes sense because it will allow for the future growth of your business.

An investor will say, “I believe in what you’re doing, and I believe in your business. I believe that this contract is going to make you a lot of money. I want to be part of the action.” They’re willing to help you purchase the equipment based on an equity position in your company. They are basing their risk on future growth.

A financier will wonder, “Can we count on you to make your payments?” If something goes wrong with this new contract, you will still need make the payments on your bank loan. The bank wants confirmation that you are going to be able to make your loan payments based on the current state of your business because they are not willing to gamble on the new contract. A financier has a “What-have-you-been-doing-lately?” mentality – not a future mentality.

Where Does Leasing Fit?

Equipment lease financing companies have more of a bank mentality than an investor mentality. A lease financier does not take an equity position in your company. However, leasing does allow for a bit more flexibility than a bank, and sometimes that new contract you have been awarded can be considered an asset in the decision-making process.

It is important to choose your lease broker wisely. A lease broker has the responsibility of presenting the case for your business and the value of the equipment you want to purchase. To do this, they must understand what makes your business special and the potential of both you and your business.

Here at Lease 1 Financial Ltd., we understand what information is needed and how to present your situation in a way that gets noticed. We want to do whatever we can to help your business grow. For us, it’s personal.

It might be helpful for you to use our Choosing A Finance Company Reference Sheet.