Do you want to start a business? But, you’re wondering whether getting a loan or grant would be better. Before searching for a lender to offer you a loan, you must understand the main differences between a loan and a grant.
Loans and grants are two options that many entrepreneurs in need of funding consider. Once you pick either, the other option will be off the table.
But, what’s the best way to go? What do you need to know about a loan vs. grant before making this decision?
Keep reading to learn more!
How They are Funded
Grant money is typically given by government agencies or non-profit organizations and is never expected to be repaid.
Loans, on the other hand, must be paid back with interest and can come from a variety of sources, including the government, banks, and private lenders.
Grants are usually given based on need, while loans are given based on credit worthiness.
How They are Used
Loans must be paid, with interest, while grants are given with the expectation that they will be used for a specific purpose and then returned.
Grants are also usually given with more restrictions on how they can be used than loans. For example, a grant to repair a roof might come with the expectation that the roof will be repaired and nothing else.
Loan vs. Grant Application Process
To apply for a loan, you will typically need to go through a formal application process, provide detailed financial information, and be approved by a lending institution.
Getting a grant, on the other hand, is typically awarded based on need and may not require a formal application process.
It is important to research the specific requirements of each before beginning the application process. If you are an entrepreneur, there are different types of loans that you can apply for. Luckily, programs like SBA loan assistance can help you maintain your business finances.
Payments
There are major differences between loans and grants when it comes to how they are paid. Loans must be paid back with interest, while grants are awarded as free money that does not need to be repaid.
Moreover, loans usually need to be repaid within a certain time frame, while grants may have no repayment requirements. Interest rates on loans can vary, while grants usually have no associated interest.
Take Control of Your Finances
There are many differences between a loan vs. grant, but the bottom line is that a loan needs to be repaid and a grant does not.
A loan may be a better option if you need a large amount of money and can afford to make regular payments. While a grant may be a better option if you need a smaller amount of money and can use it for a specific purpose.
Check out our blog for more business-related articles.
