If you’re looking to fund a growth initiative, the two most common ways to do it are through grants and loans. While there are some similarities between a grant and a loan, they are actually very different methods of paying for your growth projects. In this blog, we’ll explore similarities, detail how grants differ from loans, and help you understand which is a better fit for your project.
Similarities Between Grants and Loans
- Both grants and loans are “non dilutive” funding. In other words, there is no exchange of ownership involved in either grants or loans. Examples of dilutive funding include angel investment and venture capital.
- Both grants and loans require proof of the applicants viability, usually in the form of financial data.
- Both grants and loans can pay for investments related to growth projects.
Differences Between Grants and Loans
- A grant does not have to be paid back, while a loan has payment terms.
- A grant application requires substantial detail to convince the grant funder that your project fits their intended outcome. Loan applications typically don’t require the same level of detail.
- Grants are more competitive than loans. Typically, only a small percentage of grant applicants are funded (there are exceptions). Loans, however, are typically approved if you meet the bank’s requirements.
- Grant funders require reports to be completed to show the outcomes proposed are met, and in some cases, hold back a percentage of the funding until the required reporting is done. Loan officers only require that payments be made in timely manner.
While grants are the desired funding mechanism due to the first difference noted above, loans may be a better bet for the other reasons noted.