Debt financing
Debt financing means you raise money you must pay back, and you keep all of your business. Here is how the main types work, what they cost and how revenue-based funding fits beside them.
✓ Checking what you qualify for does not affect your credit score.
Updated October 13, 2026 · Merchant Fund Express
Debt financing is money provided to a business on the condition that it is repaid, usually with interest or a fixed fee. The provider gets repayment, not a share of the company. That is the core difference from equity financing, where an investor takes ownership and is repaid only if the business grows or is sold.
| Type | How it works | Read more |
|---|---|---|
| Term loan | Lump sum, fixed payments over a set term | Term loans |
| Line of credit | Draw what you need, pay interest on what is drawn | Line of credit |
| Equipment financing | Secured by the equipment purchased | Equipment financing |
| Invoice factoring | Sell unpaid invoices for an advance | Invoice factoring |
| Merchant cash advance / RBF | Purchase of future revenue, repaid from sales | MCA |
Strictly, a merchant cash advance is a purchase of future receivables rather than a loan, but owners shop for it alongside debt because it is repaid and does not dilute ownership.
| Debt | Equity | |
|---|---|---|
| Ownership | You keep 100% | Investor takes a share |
| Cost | Interest or fixed fee | A share of future value |
| Repayment | Required on schedule | None unless there is an exit |
| Control | Covenants possible, no board seat | Investor often gets a say |
| Speed | Days to weeks | Months |
| Item | Amount |
|---|---|
| Amount received | $80,000 |
| Structure | 12-month term loan, fixed monthly payment |
| Monthly payment | $7,400 |
| Total repaid | $88,800 |
| Cost of the debt | $8,800 |
Compare that with selling 10% of a business worth $800,000 for the same $80,000. If the business doubles in value, that 10% is later worth $160,000. Debt is usually cheaper for a profitable business; equity can be safer for one that cannot carry a payment.
All figures in worked examples are illustrations of the arithmetic, not offers or quotes. Real terms depend on your file and the funder.
Our published thresholds for each tier are on funding requirements.
Secured debt is backed by a specific asset, such as equipment, vehicles or real estate, which the lender can claim if payments stop. It usually costs less. Unsecured debt has no specific asset behind it, so it leans on cash flow, credit and often a personal guarantee, and it usually costs more. Many agreements also carry a UCC filing, which is a public notice of the provider's claim on business assets. Read the security section of any agreement before signing so you know exactly what is pledged.
Debt is a poor fit when the money will not produce more than it costs, or when it would only cover a recurring loss. In those cases cutting costs, raising prices or bringing in equity can be the better path.
When it is the right tool, check your fit or apply.
Legally it is usually structured as a purchase of future receivables, not a loan. Practically, owners compare it with debt because it is repaid and keeps ownership intact.
For a profitable business it usually is, because the lender gets a fixed return instead of a share of future value.
Some types do, such as equipment financing. Many revenue-based products are underwritten on bank activity instead.
Business interest is often deductible, subject to tax rules. Ask your accountant about your situation.
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