What is the Difference Between a Business Grant and a Business Loan?
When looking for funding, there are so many places business owners turn towards. Understanding the difference between a business grant and a business loan is a crucial first step in learning how to find the support that best fits your current business needs.
Paying the $ back:
- If you are awarded a small business grant, you do not need to pay it back. You may have to share reports or updates with the funder but you won’t need to return or pay back the money that is given to you.
- If you are awarded a small business loan, you will need to pay it back (most of the time). The funding for a loan is borrowed money, and needs to be repaid overtime to whoever lent the money. There are some loans that are “forgivable” meaning you don’t need to return the money but these typically have specific requirements and are as common as traditional loans.
- Grants do not affect your credit score and rarely require it to be submitted for applications.
- Lenders typically ask for your credit score (both personal and business) during the application process, and most loans will affect your credit score once awarded. They can be a great tool to build business credit if this is something you don’t have or need to repair.
- Grants can be incredibly competitive to apply for, so get ready to submit a strong application! Many business owners need and want grants. Since funding is usually limited, those offering grants typically can’t provide funding to everyone that applies. They will select the strongest applications based on the requirements to apply.
- Loans are less competitive but harder to apply for you. You won’t be competing against other business owners for the same pot of funding but you do need to convince the lender that you have a strong application for the loan.
- Grant applications vary in difficulty, however, you can expect them to be “easier” than loan applications. Grant applications typically focus more on the story of the business, the founder, and the need for the funds.
- Loan applications and approval processes can be lengthy. If you have an existing relationship with your bank or lender, that can certainly help speed up the timeline. The documents needed to apply will depend on the lender but you can expect to submit a business plan, financial statements, and tax records for at least two years.
The Bottom Line
The goals and process for obtaining a grant versus a loan differ widely. However, regardless of which way you decide to go, Axis Helps can assist you with finding the resources you need to fund your business.
For a deeper dive on each topic, visit our guides below:
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Posted: June 13, 2022