Business financing comes in the form of debt or equity. The difference between the two is:
Business Loan - debt acquired after receiving funds from a lender who has the expectation of being repaid with interest at some specified rate over a specific period. Although each lending situation is unique, many banks utilize some variation of evaluating the five Cs of credit when making credit decisions:
Character (integrity) - The following is part of the character question:
Equity is an ownership interest in a business - the Equity Investor(s) buy stock (in the case of a corporation) or take a partnership position. Equity investors who are not actively involved in the day-to-day operations of a business are generally those who are investing with the expectation of rapid and substantial returns from the value of their investments.
Mezzanine Financing - a hybrid of debt and equity financing. Mezzanine Financing is typically used to finance the expansion of existing companies, and it is basically debt capital that gives the lender the rights to convert to an ownership or equity interest in the company if the loan is not paid back in time and in full. It is generally subordinated to debt provided by senior lenders such as banks and venture capital companies.