If your business is seeking funding for an upcoming project, it is likely you have considered grants, loans or a mix of both funding instruments. But what is the primary difference between a grant and a loan? And when should a business apply for a grant vs. a loan? Keep reading to find out the answers.
How Loans Compare to Grants
- Grants are disbursed by government agencies, whereas loans are disbursed by the private sector (with the exception of a handful of government loan programs).
- Grants are typically tied to a project, i.e. the money must be spent on agreed-upon expenses, like R&D, hiring new staff, etc.
- Grants can be either non-repayable contributions or repayable contributions, whereas loans are always repayable.
- Repayable contributions awarded by the government often have low or no interest rates and are typically repayable according to a schedule that is favorable to the project’s positive outcome.
- Companies must secure a grant approval before incurring project expenses — approval times can range between 8 weeks and several months depending on the program.
When to Secure a Grant vs. a Loan
- In general, grants are considered more favorable than loans and should be prioritized by companies when they are a match for a project’s objectives and timeline.
- Grants will typically cover a certain percentage of project costs (this often ranges between 33% and 66%). Therefore, the remaining funds required to complete a project must be secured through the company’s existing funds, projected income, a private sector investment, or a loan.
- Many companies opt to secure both a grant and a private sector investment or a loan in order to achieve their objectives.
Fundingportal can identify the right sources of grants, private-sector investment, or loans for your business through its custom Reports service. Request a free consultation to learn more today >