Debt, Equity, and Grants are the three core categories of funding that you will come across. Each has a large number of sub categories, but this is more or less how they break down:
- Debt: Represents a loan from a saver to a borrower. You borrow a set amount of money (the principal), you don't have to pay it back until a specific date (maturity), and then you pay it back with some amount of interest (interest rate).
- Equity: Represents a percentage ownership in some company. In exchange for a certain amount of money, the investor receives a certain percentage ownership of your venture. The percentage depends on the ratio of how much money was invested to the valuation of your venture.
- Grants: Represents money that you do not have to pay back. Grants are typically given to organizations with the expectations that the funds will go towards a specific cause. They are most commonly used by nonprofits, but can be accessed by for-profit ventures as well