There are a variety of ways that you can source external funds for your business, and the options for small business funding are growing all the time. Most options fall into one of two broad categories: debt or equity. Before considering specific sources, it is important for you to understand these two types as they are interested in very different things, and are useful for different situations. Debt funding involves the business taking out a loan, usually from a bank or other financial institution. The debt needs to be repaid at a future date, usually with interest. Both the term and the repayments are set out at the start, and once the loan and interest are repaid, there is no further hold over the business. If the business is unprofitable, the debt still needs to be repaid. Similarly, if the business grows and performs well, the debt funder does not make any more money. Debt funding comes in many forms: Long-term loans may be used for capital expenditure and are often secured against assets in the business, or with personal guarantees from the owners. Short-term loans are more commonly used for working capital. Their offer may be based more on the health of your relationship and your records with a financial institution. Banks are typically the largest lenders of debt finance, but there are many specialist providers in different areas including: sector specialists, asset finance, and invoice discounters, which lend you money against your assets and accounts receivable. Increasingly, large groups of online crowd funders may lend a little to form the loan. In contrast to debt funding, equity capital is not usually repaid to the investor over a fixed period, and there is no interest. Instead, equity investors get ownership or equity in the business. Therefore, they get a share of the earnings of the business every year, in proportion to the amount they have invested and a share if the business is sold. If the business does well, the equity funder makes more money. If, however, the business is unprofitable, then the funder makes no money back at all. As with debt, there are many forms of equity capital, often separated by the level of investment or the stage of the business. Venture capitalists invest in small businesses that are looking to expand. They tend to invest in a portfolio of businesses to balance their risks as they expect massive returns on successful investments, but risk major losses when their investments fail. They are professional investors managing other people's money. Angel investors, or seed investors, typically invest in businesses in their early stages of growth. They are using their own money and have often been in business themselves. They may take more of a personal interest in the business. They may be seeking the enjoyment of being more involved day-to-day, as well as some financial return. Online crowdfunding is an increasingly popular funding alternative, where rather than a single angel investor, an equity deal is made up of many smaller amounts from many individuals. For businesses with a mass market or significant social media followings, crowdfunding can provide a way to leverage brand loyalty to fund further growth. As the owner of a small business, any of these options could be suitable for you, depending on the nature and needs of your business. One of the key aspects when approaching funding is finding the type and offer that is the best fit for both you and the funder. As you can see, one type of funding carries much more risk and reward than the other, and this means those funders are looking for very different things from business propositions. You also need to consider the cost in the long run, and the nature of the proposition on the table right now. In the next step, you will find out more about what each type of funder is looking for, and what you should look for in them.