What is best for you depends entirely on the prospects for your company (best, worst, and likely case forecasts), the terms of the loan, the terms of an equity stake, and your long-term objectives. Also, by giving an equity stake in your company, in addition to the money you receive someone to whom you must answer on a regular basis about how you are running your business. Only you know if that is something you want to do.
In most cases, friends and family loans are expected to be repaid whether the business succeeds or fails. An equity stake is not repaid in the case of failure, unless your agreement with your investor is different.
In your position, I would work through the financial forecast both ways and determine the best course of action. And in both cases, you should incorporate with an LLC or Corporation to protect your (and your partner`s) personal assets from the liabilities of the business.
Best regards,
Molly Donaldson
mmdona8/6/2009 1:25 PM
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