Many businesses need a considerable amount of revenue from outside sources on a regular basis. They need money to pay for new hires and potential capital improvements to grow their business. Companies also need new funding sources to make charitable or social programs fit into their budgets. Both loans and grants are helpful sources of revenue for these activities. Loans and grants have different purposes and requirements that make them both valid options depending on what companies need extra funds for.
Nature of money
Loans
The primary difference between a business loan and a business grant is the way that the money is given to the business. With a business loan, the business receives a certain amount of money from a bank or another lending institution. This money comes with a set of terms that govern how and when the money should be paid back. Interest rates apply to the money being loaned out according to a schedule set in advance. There are usually only loose guidelines on how the money should be used within a company.
Grants
On the other hand, a business grant involves a government agency or other group directly giving a company a certain sum of money. The grant stipulates what money will be given to the company and sometimes specific ways that the money must be used. Causes like Chenoa Fund and their effort to aid individuals with down payments would certainly be included. Companies do not have to worry about paying the money back from the grant. However, they often have to accomplish a task with that money. If they fail to keep those terms, they may either have to pay the money back or may have a much worse chance of obtaining another grant in the future.
Application process
Loans vs. Grants
The application processes for business loans and business grants are different because of the different purposes of these funding measures. In most instances, a business loan is granted so that a lender can both build a company and make money off of interest. The lender therefore analyzes the financials of a company and its ability to pay back a loan. Credit score and past business activity factor heavily into the lender’s decision, the lender’s terms, and the loan application process. Business grants are mainly donated for a particular purpose.
They are not intended to make the granting organization a sum of money because the money does not have to be paid back with interest. As a result, a business grant application is often tailored to make sure that a company is in a prime position to accomplish the task of the grant money. Companies with a poor credit history and a considerable amount of capability/talent may want to focus on business grant applications. These applications would provide practically free money to help them achieve their goals.
Companies need to look at their financials and the purpose of extra capital before deciding between loans or grants. They can pursue both in some instances. But often, companies have strained budgets and overworked employees. They have to prioritize the outside funding source that best fits their needs. By looking at credit worthiness and the purpose of funds, companies can make a safe bet as to where they need to focus their funding searches.