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 Simple versus compounding interest: Simple interest accrues based only on the principal loan. In other words, if a loan for $100 charges 1 percent interest, the lender will make $1 every period. On the other hand, compounding interest pays interest on interest. So, if the borrower doesn’t make any payments on a loan of $100 with 1 percent interest in the first year, then the loan will charge 1 percent interest on $101 rather than the original $100 the second year. This type of interest is far more common with bank accounts than loans. (Turn to ssss1 for more on these two types of interest.)

Raising money by selling shares of equity is a little more complicated both in theory and in practice than borrowing money using loans. What you are actually doing when you sell equity is selling bits of ownership in a company. Ownership of the company is split up into shares called stock. People only buy stocks when they are excited by the things they hear about them, so your story has to be particularly good when compared to the relatively number-driven world of loans. Although it is illegal to say anything fictional, it is common to share a company’s vision of their future with potential investors, providing a bigger emotional impact.