Grants vs. Loans
The main difference between a grant and a loan is repayment. A loan requires you to repay the money you borrow, whereas a grant does not. Grants are, essentially, a gift. In other words, they’re non-repayable.
Grants may be awarded by government departments, trusts, or corporations and given to individuals, businesses, educational institutions, or non-profits.
Loans are generally given by banks to both individuals and businesses, but private lenders or individuals (e.g., family and friends) may also offer loans. In the latter case, a formal agreement should be made in writing to ensure that the family member or friend is repaid. Our Loan Agreement can be used in this type of situation to ensure that both parties are protected.
Regardless of who disburses the loan, the borrower is required to repay the money—with interest and within a certain period of time. If they fail to repay, the lender may have the right to take the borrower’s asset if they put up collateral (something used as security, in case the loan is not repaid).
Oftentimes, businesses take out loans to start up or expand. While there are business grants, they tend to be few and far between. Even when a grant opportunity does arise, they are very competitive and difficult to obtain. When considering grants vs. loans, businesses typically rely on loans to obtain the funds they need.
It’s important to note that a business must be incorporated before a loan can be applied for. If you haven’t yet incorporated your business, we can help you get started today.
The Advantages of a Loan
There are some advantages to taking out a loan instead of applying for a grant.
- Greater opportunities: When comparing grants vs. loans, loans offer more opportunities. There is a limited number of grants available. Loans, on the other hand, can be given by banks, private lenders, or individuals. This creates more opportunities to obtain the financing you need.
- More financing available: Grants are also limited in the amount of financing they can provide. In most cases, grant programs are sponsored by government departments and only a certain amount of funding is available each year. With a loan, you can obtain as much financing as your credit and ability to repay will allow.
The Advantages of a Grant
Grants offer a number of benefits that any person in need of funding should consider.
- No repayment necessary: Grants are non-repayable. Once you’re awarded the grant money, it’s yours without any strings attached. There’s no need to worry about monthly payments or piling on more debt. Repayment is the fundamental difference between a grant and a loan, and also what makes grants more valuable than loans.
- No risk: Grants are a no-risk way to obtain the financing you need. If a loan is not repaid, you put your credit rating and assets in jeopardy. Grants do not require repayment and will only benefit you or your business.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.