Business investing options
For some people, putting their hard-earned cash in the bank is no longer enough of an option nowadays. After all, why let your money sleep when you can make it grow, right? And right now, there are plenty of investment instruments that you can choose from, including investing in a business.
In general, investments can be classified into two, namely equity investments and debt investments, and below are some of the key differences of both.
With equity investments, what happens is that when you invest your money on a business, in return you get to own a share or portion of the company. So basically, as part owner of the business, you have a certain amount of control over the company, and be able to join in on the decision-making processes – the bigger your share, the more power you have.
As part owner of the company, your profits will be dependent on the business’ profits, meaning if the business is profitable, then you can expect huge returns. This is why many investors put their money on equities – because of the large amount of money that can be made. However, this does not come without consequences. It is quite obvious that the higher your returns, the higher your chances of losing your money, too.
On the other hand, debt investment is pretty much like loaning your money to a business, so you don’t have any control over the business. Because it is like a loan, you will earn by collecting the principal or amount that you lent them, plus the corresponding interest. So unlike equity investments, your payout is not related to the business’ profits – whether they earn big or none at all, you still get the same, agreed amount.
Debt investment is also way safer compared to equity investments, because should a business go broke, they must first settle their debts before any other person gets a share – meaning you get paid first before the equity investor. However, take note that there is also a chance that you may not be paid at all, especially when the company files for bankruptcy.
All in all, both equity investments and debt investments have their own advantages and disadvantages. In choosing which type of investment you want to make, it is best that you spend some time learning more about each with the help of a financial advisor.