Two of the most popular methods for funding your company are grants and loans. Despite their similarities, you should be aware of a few key distinctions before choosing the best course of action for your company.

What is a grant?

A grant is a sum of money given to organizations, companies, or people for a particular reason. Grants are unrestricted financial help that does not need repayment; but, in order to be eligible, the recipient must fulfill specific requirements.

Grants are frequently awarded by corporations, trusts, or government agencies. Usually, in order to apply for a grant, business owners must submit an application. Large volumes of documentation and a drawn-out selection procedure as applicants are assessed and shortlisted are common features of the grant application process.

Benefits of a grant

Since grants are non-repayable, you can avoid worrying about debt management and incorporating monthly payments into your business plan.
Grants carry no financial risk, in contrast to loans, which could affect your credit score if they are not repaid.
Gaining a grant frequently boosts your company's reputation and positive exposure.

The drawbacks of a grant

Fulfilling the requirements for a grant does not guarantee that you will be awarded one. Grants may be hard to get and subject to fierce competition.
The grant application procedure may take longer than the loan application process, which could be a disadvantage if your company needs money right away.
Because grant applications can be lengthy and complicated, applicants may need to hire a grant writer or other specialist to assist them with the process.
A grant by itself might not be sufficient to fund your business objectives because the amount of money available through a grant is fixed and usually less than the average loan amount.

A loan: what is it?

A loan is a quantity of money that is temporarily provided to a person or corporation with the understanding that it must be repaid within a specific time frame, plus interest. Although banks usually provide loans, private lenders or people like friends and family may also provide loans.

You can use a loan for a variety of things, such as starting a marketing campaign or growing your company. The lender may be able to seize the loan recipient's assets in order to collect the debt if they are unable to repay the money.

Benefits of a loan

Compared to the limited number of grants available, loans offer more chances to successfully get money because, if you qualify, they are almost limitless in number.
Unlike grants, which have a set amount of money available, entrepreneurs can apply for as much loan funding as they need to finance the expansion of their businesses.

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Even though asking for a loan involves a lot of documentation, many entrepreneurs believe that the application procedure is easier than creating a grant application.
In contrast to grants, which can take a long time to receive, loan capital can be acquired somewhat fast.

The drawbacks of a loan

Since loan funds must be repaid, your company must make enough money each month to cover your payments without straining your budget.
Collateral is frequently required by borrowers, putting your assets—like real estate—at risk in the event that they are unable to repay the loan.

What makes a grant different from a loan?

The main distinction between a grant and a loan is that the former is effectively a gift of funds, whilst the latter must be paid back over time.

Additionally, grants and loans typically originate from distinct sources. The most common recipients of grants are non-profits, foundations, and the government. Conversely, loans are typically provided by financial institutions.

Types of business loans

To determine whether a loan is the best option for your company, let's examine the various loan types in more detail.

Loans from banks

The most popular and dependable source of capital for small enterprises is banks. Banks offer a variety of loan options, such as term loans, which are paid back over a certain length of time with monthly installments. Similar to credit cards, banks also provide business lines of credit, which allow the borrower to access a predetermined amount of money whenever they want. The borrower makes monthly payments to cover the amount they utilize.

Government financing for small businesses

Business owners can qualify for a variety of loans from both the federal and provincial governments. The Canada Small Business Financing Program, which is accessible to Canadian small enterprises with total yearly revenues under $10 million, is among the most prominent. Because a financial institution and the government share the risk, this program makes loans more accessible to entrepreneurs.

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Additionally, the government provides loans through the Business Development Bank of Canada (BDC), which funds small firms at different phases of development with up to $100,000.

Loans from alternative lenders

Companies other than typical banks that offer loans are known as alternative lenders. They frequently provide bank-like lending products like term loans and credit lines in addition to cutting-edge funding options like peer-to-peer loans, which connect investors and borrowers online.

Types of business grants

Depending on their industry, Canadian business owners may qualify for hundreds of different grants; however, the majority of grants fall into one of three primary categories according to their source.

Grants from the federal and provincial governments
Numerous industries receive support from grants from the federal and provincial governments. For small enterprises of all sizes and types, the government offers a vast array of grants, ranging from salary subsidies to funding for research.

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Searching on the official government website is the simplest method to reduce the vast list of government grants that are accessible. This website will display grants that your company may qualify for based on your industry, needs, and objectives.

Funding from the private sector

Funding from private companies or individuals is referred to as private-sector funding. Private-sector grants are frequently obtained from the following sources:

business incubator: An organization that supports the development of new businesses
Business accelerators: Like business incubators, business accelerators provide capital, office space, mentorship, and other critical resources to businesses. Compared to incubators, accelerators usually deal with businesses that are further along in their business concept.
Rich people who decide to put their money into tiny enterprises are known as angel investors. Angel investors may give grants in the form of recurring payments or one-time cash gifts. Angel investors typically want a share in your business in exchange for their financial investment, but they also frequently offer networking and mentoring assistance.

Funding from nonprofits

In Canada, a wide range of charity organizations provide small business grants. Associations, business development firms, centers of excellence, private foundations, and colleges are a few examples of common nonprofit organizations that offer awards. Your company's industry and objectives will determine the kinds of nonprofit funding for which it may qualify.

How to decide between grants and loans

When choosing whether to apply for a grant or a loan, keep the following points in mind.

• How much capital is required by your company?
  Consider which company goals you expect to achieve through financing and how much money you require to attain them. Grants might not give your company all the money it needs to move forward because they are typically smaller, limited sums.
• Outlining the monthly payment amount you can afford is also a smart idea. A grant can be a better choice if you're worried about your ability to pay back a loan each month because you won't have to.
• What is the timeline for your funding?
  Consider how quickly your company will require this money infusion. Grants are more appropriate for companies without an immediate need for funding because they can take longer to be accepted and receive funds than loans. A loan can be a better choice if you need money right away.
• What qualifies you?
  There are distinct yet distinct eligibility conditions for grants and loans. Grants are frequently linked to the region and sector of your company and normally concentrate on your intended use of the funds, which must typically advance some form of public welfare.

On the other hand, lenders typically concentrate on your entire financial situation and your ability to repay the loan. Depending on which you are more likely to be eligible for, you may choose that a grant or a loan is a better fit for your company.

Getting the money you need to reach your objectives, regardless of the kind of finance that is best for your company, can be a thrilling step in growing your enterprise.

FAQ'S 

• What are the advantages of grants over loans?

A grant offers a sum of money towards the total funding cost of a business project, and this money does not have to be repaid, unlike a loan. They're often funded by Government initiatives, so target certain types of businesses and projects to help enable growth in these areas

• Are loans and funding the same thing?

When someone borrows money from a person or organization with the goal of repaying them with interest, that is known as a loan. In contrast, a fund or financing is money given by a government or organization for a specific purpose.