Business Loans vs. Grants: What’s the Difference?
Finding money to start or grow a business is one of the biggest questions many entrepreneurs face. You may need funding for equipment, inventory, a location, certifications or another investment in your business.
At ASSETS, we help entrepreneurs understand their funding options and determine what makes sense for their business. Two options you may come across are business loans and grants.
The main difference between a business loan and a grant is repayment. A business loan is borrowed money that must be repaid, typically with interest. A business grant generally does not need to be repaid as long as you meet the requirements of the grant.
But repayment isn’t the only difference. Understanding how each option works can help you decide which opportunities are worth pursuing.
What Is a Business Grant?
A business grant provides funding that typically does not need to be repaid. Grants may be offered by government agencies, nonprofit organizations, foundations, corporations or other organizations.
That can make grants appealing, but they are not simply free money available to any business.
Most grants have specific eligibility requirements. Some are designed for certain industries, locations, types of businesses or projects. Applications may be competitive, funding is often limited and recipients may have requirements for how the money is used or reported.
Before applying, look closely at:
- • Who is eligible
- • What expenses the grant covers
- • How much funding is available
- • What information is required
- • When applications are due
- • What is expected after receiving funding
A grant can be valuable when your business and funding needs align with the opportunity. The challenge is that the right grant may not be available when you need capital.
What Is a Business Loan?
A business loan provides money that you borrow and repay over an agreed period of time, usually with interest.
Depending on the lender and loan product, financing may be used for equipment, inventory, supplies, improvements or other business investments.
Unlike grants, loans are specifically designed to provide access to capital. You do not have to wait for a grant opportunity that matches your business or compete for a limited number of awards.
Borrowing money, however, is a financial commitment. Before taking on a loan, understand how much you need, what the money will be used for, the cost of borrowing and whether your business can manage the payments.
Lenders may consider your business finances, credit history, business plan and ability to repay. Requirements vary by lender and loan program.
Business Loans vs. Grants: Key Differences
Business loans and grants can both provide funding for a business, but they differ in how the money is obtained, used and repaid.
Neither option is automatically better. What makes sense depends on your business, what you need the money for, when you need it and what funding opportunities are available.
Should You Look for a Grant or a Loan?
Not sure which funding option makes sense? ASSETS helps entrepreneurs understand their financing needs and explore available options. Schedule a free Discovery Call.
A grant may make sense when you find an opportunity that closely matches your business, project and timeline. If you’re eligible and the funding can be used for what you need, applying may be worthwhile.
The challenge is that grant availability and selection can be difficult to plan around.
A business loan may make more sense when you have a specific investment to make, understand how it will support your business and have a realistic plan for repayment.
For example, financing could help you purchase equipment that increases production, buy supplies needed to fulfill upcoming work or make improvements that support the next stage of your business.
Instead of asking only, “Where can I get money?” ask: “What type of funding makes sense for what my business needs right now?”
Before You Seek Funding, Know What You Need
Before searching for a grant, loan or another source of funding, get clear about what you’re trying to accomplish.
Ask yourself:
- • How much money do I actually need?
- • What will I use it for?
- • When do I need it?
- • What will this investment allow my business to do?
- • If I’m borrowing the money, how will I repay it?
Clear answers make it easier to evaluate funding opportunities and avoid pursuing options that don’t fit your business.
Exploring Business Financing with ASSETS
If a business loan may be the right next step, ASSETS offers small business financing for entrepreneurs across Central Pennsylvania, including Lancaster, Berks, Dauphin, York and Lebanon counties.
Our goal isn’t simply to provide capital. We want entrepreneurs to understand what they’re borrowing, why they’re borrowing it and whether the financing makes sense for their business.
Our Business Essentials Loan provides $500 to $2,500 at 0% fixed interest for foundational business expenses such as equipment, tools, supplies, certifications, insurance or short-term workspace needs.
For larger investments, our Small Business Loan typically provides $2,500 to $10,000 at an 8.5% fixed interest rate and can support expenses such as major equipment purchases or longer-term business improvements. In some circumstances, larger loan amounts may be considered based on the business and its financing needs.
Not sure how much financing you need or whether a loan makes sense for your business? A free Discovery Call is a good place to start. We’ll talk about your business, your goals, your funding needs and your timeline to help determine which loan option, if any, makes sense for where your business is today.
Ready to explore your financing options? Schedule a free Discovery Call with ASSETS.