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4 Min. Read

Grant Vs Loan: What’s the Difference?

Grant Vs Loan: What’s the Difference?

Business grants vs business loans. Which is best for you and what’s available in the UK. You’re in the right place!

When looking into business finances, you have two main financing options to consider. Grants vs loans. Though business loans are more common, grants are a game changer. The trick is to figure out what you need most for your business.

This guide is all about the differences between grants and loans in the UK for business owners. Which could be right for you?

Here’s What We’ll Cover:

What Is a Business Loan?

What Is a Business Grant?

What Is the Difference Between a Loan and a Grant?

How to Choose Between a Loan and a Grant

Key Takeaways

What Is a Business Loan?

A business loan is a sum of money that a bank or other financial institution lends you. The purpose is to help you startup your small business.

With a loan, the intent is that you pay it back in full. Most likely with some interest depending on the lender. When negotiating the loan, you’ll agree to repayment terms. This could be small monthly payments or larger amounts. It’ll depend on how long your loan is for.

Many business loans are 3-5 years. Some go as long as 10 years but the accumulated interest will be higher.

What Is a Business Grant?

A business grant is still an injection of money from an institution but with a slight difference. Grants are given with no expectation of paying them back. That’s right - free money!

Because they are essentially investing in you with no strings attached, grants can be more difficult to attain. Usually, they come from local or national government initiatives to encourage small businesses. There are also business grant opportunities for minority populations such as women, BIPOC or differently-abled entrepreneurs.

Each grantor will have different criteria for how they evaluate you. Usually, government grants are dependent on how you intend to spend the grant money.

What Is the Difference Between a Loan and a Grant?

The key difference between a business loan and a business grant is the structure. The former you have to pay back, the latter you don’t. However, there are a few other key differences between loans and grants worth considering:

  1. Business loans are generally easier to attain. The eligibility requirements and application process for grants are much more complex. Businesses of all kinds qualify for loans every day. Whereas grants are more scarce and usually more competitive.
  2. Business loans are typically offered by credit unions, banks and building societies. Grants are typically backed by the government, non-profit organizations or sometimes private organizations. They are rarely offered by financial institutions.
  3. Grants usually take longer to access funds than loans do. Neither are particularly “fast money”. But generally grantors have a more lengthy review process than lenders do. Business loans could be granted within weeks. Grants can take months.
  4. For loans, you can request the amount of money you need. Grants are usually set by the grantor. You apply for the amount that is stated and you can’t get any more than that. Loan terms are more flexible in that regard.

How to Choose Between a Loan and a Grant

  1. ResearchResearch research research! There are so many loan and grant opportunities out there. It’s good to spend a decent amount of time looking into all grant and loan schemes available. Look at all levels: local, regional, national. Compare business loan rates. If you’re so inclined, start a comparison spreadsheet.
  2. Decide How Much Money You NeedThis can be the deciding factor in which format you choose to go with. Any money is helpful, but try to get a clear goal number for startup finances. What do you truly need right now? How soon do you need it?
  3. Are You Eligible For Current Grant Opportunities?If there is a grant opportunity that aligns with the amount you need, truly consider applying. You don’t need to pay back the grant so it's a solid financing option if you can get one.

Key Takeaways

To start your small business journey, it’s definitely worth considering getting outside capital. If you qualify for grant opportunities, they are good to apply for. You have nothing to lose by applying. If not, plenty of banks offer flexible business loans for however much you may need. There are different types of loans too.

For more small business guides like this one, check out our resource hub!


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