A large number of people do not know the difference between Grants and Loan. Quite a number, struggle with how they work and others, sigh at their lasting effects. For this purpose, it is important that we discuss Grants and Loan, following the most recent of updates.
As an individual that is seeking funds to expand operations or start operations, it is pertinent that you understand the financial options available for you.
In the world today, there are just two most common mediums of obtaining funding and they are Loans and grants. Both seem to accomplish the same result, however, grants and loans are different.
Difference between Grants and Loans.
The major difference between Grants and Loans exists in their repayment. Where loans require you pay the money you borrow, Grants does not require payment back.
Grants are synonymous to gifts. Several organisations, including government departments, corporations, and trusts can award grants to individuals, non-profit organizations, businesses and educational institutes.
Banks and private lenders on another hand give loans. Banks may give loans to individuals and businesses with private lenders doing the same. As a form of protection for both parties involved in the loan, they would make a formal agreement in writing.
A loan requires that the borrower must repay the money with interest and over a particular period of time. Where the borrower defaults, the lender might have to take any asset set as collateral by the borrower.
What are the advantages and disadvantages of Grants?
Grants, as earlier mentioned do not necessarily need to be paid back. They are described as some sort of gift. The primary advantage of grants is that, unlike loans, they do not have to be repaid. Also, they do not require that the awardee return any incentive whatsoever. A grant as a means of financial assistance is designed to aid business growth or serve some other particular purpose.
On the flipside, Grants are difficult to get. For the fact that grants are for business benefits, and because there are not many of them, the competition is fierce. The application processes for grants acquisition require businesses to spend money and other resources. However, the money spent applying for grants does not guarantee that the grants applied for will be won.
What are the advantages and disadvantages of Loans?
Loans, as opposed to grants, need to be repaid over a stipulated time. Furthermore, loans require collateral in case of defaults and, in most cases, very inconvenient to the borrower. Depending on the type of loan collected, either bank or personal loan, interest rates pose quite the threat for borrowers. In some cases, most borrowers go out of their way to be able to pay back the money they have borrowed with the interests on it.
Most banks only give out loans to established businesses where something substantial can stand as collateral. It is important as well to note that a business must be incorporated before a loan can be applied for.
Moving away from the negatives of Loans, it is important to view the bright side. At the beginning of the loan term, you might be able to negotiate a repayment holiday. This means that you only pay the interest for a certain amount of time while the capital repayment is paused. A major advantage of loan sits in the fact that you do not have to give the lender a percentage of your profits or a share in your company. All the lender has is the collateral you have set.
Grants and loans are quite different in their own unique ways, but both are exclusively dedicated for capital growth.