Debt and equity finance

Debt and equity are the two main types of finance available to businesses. Debt finance is money provided by an external lender, such as a bank. Equity finance provides funding in exchange for part ownership of your business, such as selling shares to investors.

Both have pros and cons, so it’s important to choose the right one for your business.

Funding type Advantages Disadvantages
Debt financing

Retain full ownership

No obligations after repayments

Cash on hand quickly

Interest is tax deductible

Short and long term options

Minimal opportunities for small businesses

Repayments with interest

Often requires collateral

Equity financing

No debt repayments

Ongoing expertise and advice from investors

Investors are prepared to wait for a return on their investment

More cash flow available for the business

Can provide funding for businesses that can't get a bank loan

Forfeit of a portion of the business and revenue

Indefinite payments to investors

Ongoing consultation and consideration of investors when making decisions

Sources of debt and equity finance

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Common sources of funding

Three common sources of funding include:

Read more about each type to see if they suit your business and situation.

Crowdfunding Venture capital Business loan
Funding type Varied Equity Debt
Finance provider Individuals, investors, friends and family Investors Banks

Reasons for seeking finance

Below are some reasons for businesses to seek finance. Read more about the finance options available for each.

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Read next

Find out more about applying for a business loan.

Understand the different types of crowdfunding.

Understand how to find the right investors and how to pitch to them.