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Different types of business finance products

When sourcing funds for your business, there are generally two types of finance:

  • Debt finance – money is borrowed from a lender for the business, e.g. getting a bank loan.
  • Equity finance – money is provided in exchange for owning a part of the business, e.g. having shareholders.

There are advantages and disadvantages to each type of finance.

Read about the types of finance at WA Small Business Development Corporation.

Debt finance

Debt finance is when you get money in the form of debt from a lender, which will have conditions on how the money will be repaid.

The advantages of debt finance include:

  • you’ll still have full control of your business (no shareholders)
  • you’ll still fully own the profits from your business
  • the interest you pay in your repayments is tax deductible.

Disadvantages of debt finance include:

  • the debt will need to be repaid
  • most debts will incur interest
  • it can be difficult to secure a debt if you’re just starting out
  • you risk bankruptcy if you are unable to repay your debts.

Common sources of debt funding include:

  • financial institutions – loans and other finance products from banks, building societies, credit unions etc.
  • retailers – some retailers offer store credit so you can buy goods and pay them off later.
  • suppliers – some suppliers offer supplier credit where you can delay payment for supplies.
  • finance companies – generally can offer finance through retailers.
  • family and friends – may be able to offer loans, though it’s important to consider how this will affect your relationship and make sure the terms of the loan are well documented and understood.

Find out more:

  • Read more about the different types of debt finance in Sources of finance.
  • Check out the QLD business and industry portal’s information on Debt finance.

If your business is struggling financially due to COVID-19, some measures have been put in place to help small and medium enterprises to access credit.

Temporary relief measures have also been put in place to help financially distressed businesses stay afloat during COVID-19.

Equity finance

Equity finance is when money is provided in return for owning a part of your business. While the money provided does not need to be returned, it does allow the provider to gain returns from the profit you make in your business.

Advantages of equity funding can include:

  • not having debt that needs to be repaid
  • having less risk than debt finance as you do not owe any money
  • having a network of business contacts and skills through your investors who want you to succeed
  • possibly getting follow-up funding as your business grows from your investors.

Disadvantages of equity funding include:

  • sharing ownership of the business with your investors – as they’ve invested in your business, investors will also have a share in business decisions
  • needing time and money to make your business ready to present to potential investors
  • needing time to research and find the right investors for your business
  • risk of affecting your relationship with your investors should the business fail.

Some common sources of equity funding include:

  • self-funding – if your business is self-funded, it means you won’t need to share ownership with anyone, but you also run the risk of losing all your business investment should it fail. 
  • family or friends – can provide finance for your business in return for a share of the profits.
  • private investors – you may be able to find private investors for your business if you can present an attractive idea and strong business plan.
  • venture capitalists – large corporations sometimes will invest large amounts into start-up businesses with potential for high growth and large profits.
  • stock market – you can publicly offer shares of your business to raise capital.

Did you know?

If you're an Early Stage Innovation Company (ESIC) looking for investors, those who purchase new shares in your company may be eligible for:

  • a non-refundable carry forward tax offset. This tax offset is generally equal to 20% of the amount paid to acquire the shares, up to a maximum offset of $200,000 per year.
  • modified capital gains tax treatment, where capital gains on shares that are held for between 1 – 10 years are disregarded (capital losses made during this period must also be disregarded).

Read more on tax incentives for early stage investors on the ATO website.

Find out more:


Crowdfunding is a way of getting finances for your business through donations from the general public. This is usually done through presenting your idea on a crowdfunding website. If they’re interested in supporting your idea, the public can make a donation to your business to help you develop your product.

While this is a great way to raise funds and generate a customer base for your product, it’s also important to make sure that you’re keeping your backers (those funding you) up to date with your progress and that you’re meeting your intended goals.

Find out more about crowdfunding, how to crowdfund, and the advantages and disadvantage on our crowdfunding page.

Keep in mind that money you receive through crowdfunding may be subject to tax. See the ATO’s crowdfunding information for things to consider.

Government grants and assistance

Depending on your business, you may be eligible for government grants to help you. While most government grants are not for starting up a business, grants are available to help you grow your business, develop a business idea or get started in exporting.

Our Grants & programs search can help you find government grants and assistance you may be eligible for.

Did you know?

All government grant information is freely available through official government sources.

If you’re going through a private company for help with getting government grants for your business, make sure to check the service that you’re paying for isn’t something that is available for free.  

Export finance help with Export Finance and Insurance Corporation

If you’re looking for finance to export, the Export Finance Australia agency offer loans and other finance products to help exporters.

Visit the Export Finance Australia website for more information. 

Applying for finance

When you’re applying for finance for your business, whether it’s with a lender, broker or investor, it’s important to make sure you are well prepared and present yourself and your business in the best way possible.

Before you go, make sure you:

  • have your business plan ready
  • are prepared to present your business and idea
  • know your finances (such as the amount of funding you need, how you can repay it etc.)
  • are prepared to answer questions that you may be asked.

Find out more:

Managing business loan refusal

If your application for a loan is refused, it can often be a disappointing experience. However, when it happens, it’s important to seek feedback for why the loan was refused. This can help you to evaluate:

  • what you can improve on
  • whether you need any changes to your business to make it more viable and attractive to lenders and potential investors
  • whether it’s viable to apply again for a loan or find other ways of sourcing finance
  • whether you want to dispute the refusal decision.

If you do decide to dispute the decision, there are steps you can take to help you.

Find out more in our information about how to manage business loan refusal.