There are two basic types of finance: debt and equity. Debt and equity financing serve different business needs and have very different implications.

Use debt financing when funds are required for a specific asset and you are confident the cashflow to service the loan will be generated. A good practice is to match the term of debt to the expected life of the asset. Term loans are a good way to finance the purchase of fixed assets. Bank overdrafts and other short-term debt arrangements are a good way to source working capital.

Equity financing is the option that injects funds or capital into the business. The owners of a business are the equity holders.

For new business owners, it is highly advisable to seek legal and accounting advice on financing and equity choices. The decisions you make will have significant taxation and business ownership implications.