Grant vs Loan: Difference and Comparison

What are the major differences between a grant and loan(grant vs loan)?

Small businesses that wish to expand usually need loans from financial institutions. Whether you are an experienced entrepreneur or you are running a small business, you will need funds to expand your enterprise.

Loans and grants have helped many businesses to grow from small to well-known businesses. They have been a reliable source of funding for several businesses.

While grants and loans may share a common similarity, there are a few differences between and it’s important to understand this before making a decision.

What Is a Grant?

Grants are free financial assistance usually from government department, corporation or trust to individuals, businesses or institutions. It’s a sum of money provided for a specific purpose, with no requirement to pay back at any given time.

For a grant to be awarded, the receiver needs to meet certain criteria to benefit from it. One of the main requirements for business owners who want to expand their businesses is to submit an application for a grant.

Applying for a grant may involve a lot of paperwork. The application process for the small business grant can take some time, with loads of paperwork to be completed.

Also, expect a lengthy selection process because of the number of candidates that need to be assessed.

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What Is a Loan?

A loan is a sum of money that an individual, group, or business borrows from another individual, group or financial institution, with the condition that it be repaid at a later date.

Loans are usually repaid with interest within a specific time period. Banks private lenders, groups or individuals can offer loans. However financial institutions remain the preferable destination for individuals and businesses to get loans.

There are several reasons one may decide to get a loan from banks or from private lenders. Small business owners take loans for the purpose of expanding their business.

Generally, there are different types of loans with their specific interest rate. A borrower will agree with the lender on the interest rate and when the loan is to be repaid.

If the borrower cannot procure enough funds to repay the loan, the lender may possess the right to take over their assets.

Grant vs Loan: Advantages of a Grant and a Loan

No Repayment

Although it requires a lot of paperwork and may take a while to assess all applicants, grants are non-repayable. This means the sum of money you will receive is totally yours and you are not required to repay.

This is one of the advantages of receiving a grant over loans.

No Risk

You are at no risk of losing your assets because you don’t need to repay a grant. However, you are likely to lose your assets and credit standings when you don’t repay the loan at an appropriate time.

You don’t have to repay a grant or think about any interest rate for the funds you receive.

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Advantages of a Loan

Greater Opportunities

Loans offer lots of opportunities than a grant. Since there is no requirement to repay the sum of money received, there are only a few grants available to people.

But you will get loans from banks, private lenders, individuals or groups. You have a better chance to receive funds to expand your business but you have to repay the loan over the given time agreed with the lender.

More Financial Alternative

Grant programmes are mostly backed by government agencies, so there is a specific amount of money offered to eligible candidates each year.

For a business owner who plans to receive a specific amount of money to grow his or her business, the amount given out each year as a grant may not be enough.

Business owners and individuals can borrow an amount of money they consider resourceful, provided their credit and capacity to repay the loan allows it.

Grant vs Loan: Difference between a Grant and a Loan

The major difference between a grant and a loan is that the former is non-repayable, while the latter is repaid sometimes with interest. Grants are free financial assistance mostly offered by government departments, corporations or trusts.

Loans and grants are mostly offered by different sources. Entrepreneurs starting up a small business often need a loan or grant to expand their business.

Unlike loans, grants are non-repayable and are often offered by the government or non-profit organizations. Financial institutions mostly offer loans to individuals and entrepreneurs who run small businesses.

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Grant vs Loan: Comparison Chart

	Grant	Loan
Definition	Grants are free financial assistance usually from government department, corporation or trust to individuals, businesses or institutions.	A loan is a sum of money that an individual, group, or business borrows from another individual, group or financial institution, with the condition that it be repaid at a later date.
Interest	No interest	The interest rate varies based on the type of interest.
Availability	Not easily awarded to any individual or entity.	Loans are available and mostly offered by banks.
Refund	Grants are non-repayable but need to be refunded if certain conditions are not satisfied.	Loans have no such refunds.
Source	Limited	You can borrow as much money as your credit and capacity to repay the loan will allow.

Grant vs Loan: Types of Business Grants

Generally, business grants are mainly in two forms, which is either supported by the government or privately funded.

Government grants are offered at the local, state, and federal levels. Every business applying for a government grant is required to meet certain criteria.

The local government grant is a bit easier compared to those offered at by state and federal authorities.

The COVID-19 pandemic was a tough period for every business owner whether big or small. To help companies affected by the pandemic, small business relief grants were issued by the government.

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Types of Business Loans

Line of credit: Line of credit is a type of business loan that works just like a credit card. It involves the borrower receiving a specific amount of money and repaying it with interest within a given time.
Equipment loan: Here, an entrepreneur can get a loan for purchasing or leasing certain assets such as equipment, real estate or vehicles.
Lump-sum loans: A business owner may decide to get loans for a specific amount upfront and repay the loans with an interest rate within a given time.
Secured and unsecured loans: While a secured loan involves business collateral such as cash reserve or land, an unsecured loan is offered on the lender’s trust of repayment.
Small business administrative loans: Getting this type of loan is more like applying for a grant. They are government-guaranteed loans that are more competitive and take a longer period.

Conclusion

Grants are free financial assistance usually from government department, corporation or trust to individuals, businesses or institutions. A loan is a sum of money that an individual, group, or business borrows from another individual, group or financial institution, with the condition that it be repaid at a later date.

Loans and grants offer business growth for entrepreneurs who want to expand a business. There are different types of business loans and grants that business owners can benefit from.

While a grant is non-repayable, it offers a limited opportunity.

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References

Ownr.co: Grant vs Loan: What’s the Difference?
Keydifferences: Difference Between Grant and Loan
Getfundid: What’s the Difference Between a Grant and a Loan?
Granted.ca: What’s the difference between a grant and a loan?