Business loan vs business grant

DATE: Jan, 1   COMMENTS: 0   AUTHOR: Allan Azarola

Finance is the fuel of any business, ensuring that various organisational operations continue to run without any hindrance. Therefore, if you are starting your business, it is imperative to ascertain that you have an adequate amount of finance to cover your various costs. There are many options available for start up finance that can help budding entrepreneurs set-up their dream project. 

Business loans and business grants are two popular financing options that are suitable for startups. While the essential purpose of both the financing options is the same, they are significantly different from each other. Therefore, you must understand the difference between the two and then make a well-informed decision with regards to acquiring your start up finance. 

Business Grant Vs. Business Loan – The Difference 

Business Grant 

A business grant provides you with essential funding without the business having to repay the amount. A grant is offered to business when they meet specific criteria. There are various institutions that offer a business grant, and the criteria are different for each one of them. The UK government, the European Union, and the Local Authority are the main institution that offers business grants for start up finance. You should do some research and see for which grant you are qualified to obtain. 

Grants are difficult to acquire when you are merely starting out because criteria are very stringent. Furthermore, you need some experience of running a business to qualify for a business grant. Business grants are great financing option if your business is at its growing phase. 

Business Grant Benefits 

Following are some important benefits of the business grant – 

  •  Non-Repayable Money 

You get non-repayable money to start your project. The capital could range from hundreds to thousands of pounds that could assist in business growth. 

  • Equity

With the business grant, you don’t have to lose equity to shareholders and compromise business plans with them. 

  • Validation 

When you obtain a business grant, it gives your project a sense of validation that a reckoned institution is backing up your vision. 

Business Grant Disadvantages

  • The Sum of Grant 

In some cases, grants expect you to possess some percentage of the project yourself. Furthermore, if you don’t adhere to the plan that you had laid in the proposal, you may have to repay the amount. 

  • Flexibility 

Since you have to stick to the original plan, you don’t have much flexibility. Moreover, sometimes, the criteria require you to finish a certain aspect of your project in order to be eligible for the money. Therefore, you need to have a back-up to cover your costs in the initial stages. Additionally, you can also use the money on a specific project and not other business operations.

  •  Time-Consuming Process

Applying for a grant is certainly a strenuous task. There are multiple options with a unique set of requirements. Therefore, you will have to spend adequate time in understanding each one of them. Moreover, once you apply for a business grant, you will have to wait a long time to hear from them. This waiting process can get frustrating, especially if you don’t have the funds to start the project. 

Business Loans 

Business loans are more diverse and opportunity-filled start up finance option. Business loans come in various forms, allowing you more flexibility. You can apply for small business loans provided by banks or organisations managed by the Small Business Association. The criteria are simple, and you can acquire a business loan at any stage of your business cycle. There are multiple types of loan to suit your distinctive business requirements. 

Business Loan Benefits 

  • Maintains Cash Flow

With a business loan, you can boost your revenue or obtain a competitive edge in the market. Depending on your repayment capabilities, you can take long-term or short-term loan. 

  • Simple Disbursal Process 

Today the loan disbursal process has become extremely simple. Owing to the immense government support and positive economic perspective of small-scale ventures, there is tremendous scope for start up finance. The loan process is streamlined, and friendly that works for both lender and borrower. 

  • Lower Interest Rates 

Many banks and other financial institutions provide business loans at competitive interest rates. All you have to focus on is the interest rate and processing fees. 

Business Loans Disadvantage 

  • Security

In order to acquire a business loan, you may have to put in some security. Therefore, the risk becomes greater. If your business doesn’t work out, you could end up losing your personal property as well.

  •  You May Not Get All the Money 

Banks typically don’t grant you the entire money that you have requested. Typically they approve 70-80% of the money that you have asked them. This could be frustrating if you made a business plan, including all the costs. 

  •  Restrictions 

Even after you have acquired the loan amount, there are certain restrictions by the bank that you have to follow. For instance, some banks require you to maintain a certain debt-to-equity ratio. It is a sign of your business’s financial strength. 

Which One Should You Opt For Your Financial Needs?

You have to consider several options in order to determine a suitable start up finance option. Following are some prominent factors – 

  • Your Primary Business Objective 

Being aware of your business’s primary objective will help you determine what type of finance option to choose. Create a budget to know exactly what amount you will need to reach your goals. 

  • When Do You Need It?

If you are not in a hurry to get the money, then you can apply for a business grant. Typically, you have to wait for months before being provided with a grant. If you are in immediate need of money, then business loans are a more suitable option. Your application will be processed within a couple of days. 

  • Your Repayment Capabilities 

While you don’t have to pay back a grant, business is repayable. So consider your repayment abilities as well as interest rates prior to applying for any loan. 

The Bottom Line

Having proper start up finance in hand will help you launch your dream project. Ensure to research and evaluate your options prior to making a decision. The time you invest today in picking the right financial support can help you save a significant amount of time, money, and hassle in the future.

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