Loans Versus Grants: Which Is Best For Your Business?

When most people consider business funding, they automatically think about loans. Well, in all fairness, a lot of business owners reach a situation where they take out a loan because they are typically the fastest and easiest way to get financing.

However, before you write out that pre-approval application, look at some of the available grants. But grants are not for everyone, and they come with plenty of requirements and are competitive. Nevertheless, since you can end up saving lots of money because you do not have to pay it back, grants can be an ideal option.

No matter where your business is at now, knowing your financing options is essential. For a little help, we’ll help you decide whether grants or loans make more sense for your business. So, take a read!

Loans Versus Grants

Although there are many financing options available today, let us focus on loans and grants. Loans are more diverse options. Thus, it’s filled with a lot of opportunities. For businesses, they can take out business loans.

Business loans arrive in different sizes and shapes. There are uncomplicated options to qualify for, such as the small business loans (SBA) offered by organizations and banks. Such a loan is ideal for any business at an early life cycle or startup.

Moreover, there are also working capital loans. These loans are ideal for guaranteeing that you’ll have money when you need them. And never have a cash crunch, whether it is to pay your everyday expenses or suppliers.

Furthermore, a revolving line of credit is yet another option to think about. Although you’re approved for a particular amount, you do not need to get the whole amount all at once, or ever. Thus, allowing you to get the amount when you need it. 

However, you need to ensure that you have good credit before taking out a loan. The FICO score has reached its highest ever, which is 704. It is considered good credit. 

On the other hand, business grants provide funding without requiring you to pay it back. Usually, a business grant is offered to a business in need that requires some particular criteria. Say, for instance, Eileen Fisher, a clothing brand, awards grants at least 10,000 dollars to businesses owned by women. 

Another example is the NASE (National Association for the Self-Employed) gives 4,000 dollars to businesses with specific needs for financing. There are many grants for different industries and demographics. Thus, it is worth to investigate and see which option you qualify for.

Business grants might be more challenging to obtain, especially for startups. Keep in mind that the requirements are typically rigorous, and you might need some experience operating your business.

Which Makes More Sense For Your Business?

You will need to consider a few factors to determine whether loans or grants are ideal for your business needs. First, you need to figure out your objective. The intention of borrowing money will rule what route you take.

Take, for instance, if your business doesn’t have ample money to operate successfully and are concerned about paying salaries to your employees, then a working capital would be ideal. Moreover, if you are picturing big plans for growth or expansion, then a small business loan is ideal. 

Knowing the objective of getting financing will aid you in applying for a grant or loan. You may be required to submit a budget for the money. Still, even if you are not required, it is a great idea to create one to make sure that you ask for enough money to embody all your expenses to attain your goal.

Next, what is your timeline? If you would want more cash but aren’t in a hurry to obtain it, then applying for a business grant won’t hurt. Typically, there is an application period of a couple of months. Thus, do not expect to know if you’re given the grant for the time being. 

Additionally, since there’s plenty of competition for business grants, you will be less likely to get awarded than you would apply for a loan. If time is critical, then a working capital loan is ideal. This kind of loan can typically be approved within several days. 

Lastly, how fast can you pay it back? Well, grants won’t require you to pay it back. However, loans do. Therefore, check the payback requirements of the loan you will be taking plus the interest rates. 


The primary difference between a loan and a grant is repayment. A grant does not require you to repay the money you borrow, whereas a loan does. Business financing is an essential tool that can help you grow or launch a business. Ensure you weigh the drawbacks and benefits of different types of funding to help you make the correct choice for your business. 

Author Bio:

Tiffany Wagner is a seasoned wordsmith for finance, banking, real estate, and lifestyle articles. She’s also a regular contributor to various websites. Whenever her time permits, Tiffany goes on a backpacking adventure with her family.