7 Differences Between Business Grants and Loans
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What Are Business Loans?
How Business Loans Work
Pros of Business Loans
Expedite business growth The funds from a business loan can allow you to put your plans into action sooner, rather than having to wait until your business has generated enough profit to fund expansion yourself. Maintain business ownership With a loan, you can get an injection of capital without bringing on any investors. This enables you to keep full control of your business and retain all the profits as your company grows. Flexible use of the funding If you receive funding from an investor or a grant, you may be limited in how you can use the money. When you borrow from a lender, so long as the loan isn’t specifically for business equipment or real estate, there are typically no restrictions on how you can spend those funds.
Cons of Business Loans
Application process can be extensive For a bank or Small Business Administration (SBA) loan, you’ll not only need to fill out an application, but will also likely need to provide two or three years of tax returns and financial statements, as well as a business plan. You could lose assets if you default on payments If you put a business asset up for collateral, you could end up losing it should you default on the loan. If you sign a personal guarantee, the lender can potentially come after your personal assets. Interest rates can be high if you don’t have strong credit Interest rates typically depend on your credit score, both your business’s score as well as your personal score. While banks often offer lower interest rates than other funding options, it’s not always easy to qualify for those favorable rates. If you have a below-average rating, you could end up paying more for the loan than you’d like.
What Are Business Grants?
How Business Grants Work
Pros of Business Grants
It’s free money The biggest advantage of a grant is that, unlike a loan, the money does not have to be repaid. Accessible information There is extensive information available online about where, how, when, and who to get grants from. This is important, because you generally need to do a lot of searching to find the right grant for your business. (Two good places to start: grants.gov and the SBA’s grant page.) Gain credibility Receiving a grant increases your business’s visibility. It helps promote your business and idea and lets others know that your work is important. And, once you’ve been awarded one grant, you are generally more likely to receive others, since other organizations will see you as a reliable candidate.
Cons of Business Grants
Business Loans vs Grants: 7 Important Differences
1. Grant vs. Loan Eligibility Requirements
Business credit score Personal credit scores Personal income or business income Profit and loss statement Cash flow statement Business or personal assets
2. How Grant vs. Loan Funding Can Be Used
3. Funding Amounts
4. Repayment Requirements
5. The Application Process
Choosing Between Business Loans vs Grants
Can I earmark these funds for a specific purpose? How much money do I need? Are there any grants for which my small business is eligible? Will my business be able to pay back these funds? Do I have the time to search out and apply for grants? Do I have a personal or business credit score that will allow me to get good terms on loans?
Different Types of Grants and Loans
Federal business grants State business grants Local business grants Small business relief grants Corporate business grants Specialty business grants Term loans SBA loans Business line of credit Equipment loan Invoice factoring Merchant cash advance Microloan
EIDL Grants vs Loans
PPP Loans vs Grants
Frequently Asked Questions
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