Every type of business funding has a price, even the ones that look free. A loan costs interest and a monthly commitment. Equity costs a share of everything the business will ever be worth. A grant costs time, conditions and reporting. Choosing well means comparing those prices against what the money is for, not picking whichever option is easiest to find. This guide explains how each main type works and what it really costs you.
If you already know the type you need and want to know what fits your stage of business, see our funding map from idea to growth. For the named places to apply, see our list of small business funding sources.
The types side by side
| Type | What it costs you | Who controls the business | What the funder wants to see |
|---|---|---|---|
| Term loan | Interest and fees, repaid monthly | You | Trading history, cash flow that covers repayments, often security |
| Overdraft or revolving credit | Interest only on what you use, plus a facility fee | You | Several months of account history |
| Asset finance | Interest, spread over the life of the asset | You, with the asset as security | A quote for the asset and income to repay |
| Invoice or purchase order finance | A fee on each invoice or order funded | You | Creditworthy customers and confirmed orders |
| Revenue-based finance | A fixed total, repaid as a share of your sales | You | Steady card or bank turnover |
| Equity | A permanent share of ownership and future profits | Shared with the investor | A business that can grow large |
| Grant | No repayment, but conditions and reporting | You | A precise fit with the scheme’s purpose |
| Your own capital | Your personal savings and risk | You | Nothing, which is its main attraction |
Debt: you keep the business, you owe the repayment
With a loan, the lender has no share in the business. You repay the amount plus interest on a fixed schedule, whether or not the month was a good one. That certainty makes debt the right choice when repayments can come out of predictable cash flow, and the wrong choice when income is uncertain. Match the term to the use: a short facility for stock or a timing gap, a longer loan or asset finance for equipment that earns over years. Funding a long-term asset with short-term money is one of the most common ways small businesses create their own cash crises.
Equity: no repayments, but you share everything after
An investor pays for a share of the business. There is no monthly repayment, which is why equity suits businesses that must spend heavily before they earn. The cost comes later, and it is usually the most expensive money a business raises if it succeeds, because the investor owns that share of every future rand of value. Investors also expect a say in major decisions.
A worked example: the same R500,000 two ways
These figures are illustrative, to show how the costs behave, not a quote.
- As a loan at 15% a year over three years, the monthly repayment is roughly R17,300 and the total repaid is roughly R624,000. The money cost about R124,000, and after three years the debt is gone.
- As equity for 20% of the business, there are no repayments. If the business is later worth R10 million, the investor’s share is worth R2 million. The same R500,000 cost R1.5 million more than the loan, but the business never had to find R17,300 a month.
Neither is automatically better. Debt is cheaper if the business can carry the repayments. Equity is safer if it cannot.
Grants: free of repayment, not free of cost
Grants do not need to be repaid and take no ownership, but they fund specific projects in specific sectors, often require you to pay part of the cost yourself, and come with reporting on how the money was used. Because they are competitive and slow, treat a grant as a bonus alongside a funding plan rather than the plan itself.
Cash flow finance: funding tied to your sales
Invoice finance advances money against invoices your customers have not yet paid. Purchase order finance pays your suppliers so you can deliver a confirmed order. Revenue-based finance advances a lump sum that you repay as a percentage of daily or monthly sales, so repayments fall when trade is slow. All three assess your sales and customers more than your balance sheet, which suits younger businesses, but their fees can be high relative to a bank loan.
Your own money and informal funding
Savings and loans from family cost no interest or equity, but the risk sits with you personally and, with family money, with a relationship. If you take it, write down the terms as you would with any lender: the amount, whether it is a loan or a share, and when it is repaid.
Before you borrow from anyone
Lenders who offer credit to consumers and small businesses must be registered with the National Credit Regulator. Check an unfamiliar lender before signing, and be wary of anyone who asks for an upfront fee to release a loan.
Frequently asked questions
What is the difference between debt and equity?
Debt is repaid with interest and leaves you owning the business. Equity is never repaid but gives the investor a permanent share of ownership.
Which type of funding is cheapest?
Your own money and grants have no financing cost. Among external funding, a bank loan is usually cheaper than equity for a business that succeeds, and cheaper than most cash flow finance.
Can I combine different types of funding?
Yes, and many businesses do: for example asset finance for equipment, an overdraft for timing gaps and a grant for a specific project.
Why does the loan term matter so much?
Because repayments must come from the income the money generates. Short-term loans for long-term assets force you to repay before the asset has earned its cost.
Is revenue-based finance a loan?
It works like one, since you repay a fixed total, but repayments move with your sales instead of being a fixed monthly amount.
