Business Grant vs Loan: Which Is Right for You?

Did you know 81 percent of entrepreneurs in the United States don’t get funding?

If you’re struggling to raise capital to start a new business or fund an existing one, it’s clear you aren’t alone. Lack of adequate capital means your dream to start a business may never materialize.

However, as a savvy entrepreneur, you can always get funding, as long as you know where to look. Business loans and grants are an especially ideal option.

If you already have access to both, which should you choose? Keep reading this grant vs loan guide to learn more.

The Pros and Cons of a Business Loan

Business loans are a go-to option for most entrepreneurs who’re looking for business funding, and for good reason.

As long as you’ve got a solid business plan and your credit is good, it’s easy to secure a business loan. You can also go in for a secured business loan, as long as you have property, such as a house, that you can use as collateral.

Besides the relative ease of getting a business loan, there are different types of business loans designed for specific purposes. For example, you can get equipment financing when your goal is to raise money for purchasing business equipment.

There are working capital loans, business lines of credit, and term loans. Disaster loans help you get through tough economic times. Cscadvisors.net has more information on how disaster loans work.

Business loans also enable you to build business credit, which will come in handy if you’ll need bigger loans in the future.

On the downside, lenders will charge you an interest every time you take out a business loan. The rate can be exorbitant, especially if you don’t have strong credit.

There’s lengthy paperwork you have to file, which can be time-consuming for busy entrepreneurs. Also, if you default on the loan, there will be disastrous consequences. Your business credit score will take a hit and if it was a secured loan, the lender will repossess the collateral.

The Pros and Cons of Grants

A grant is a non-repayable fund meant for a certain purpose. In the business world, a grant is a source of capital.

The biggest benefit of a grant is there’s no requirement to pay back the money. As such, it’s not a liability. You can even consider it free money.

However, while there is no pay-back clause, most providers of grants exercise oversight on how the money is used. This is unlike most business loans that afford you the freedom to spend the money however you wish.

A business grant can help build your business’s credibility, especially if it received the funds from a popular institution.

On the downside, getting a grant is an uphill task. Organizations that offer grants have stringent requirements and there are usually several applicants, all competing for a slice. You’ll likely need to hire a grant-writing professional to craft a grant proposal. This is a business expense.

Grant vs Loan: Have Your Pick

It’s not often that an entrepreneur has to choose between a grant and a business loan. If you’re in a position where you have to choose, however, this grant vs loan guide will help you make the right choice. Both options have their pros and cons, but there’s no doubt a grant is your best business funding option.

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