The differences between grants and loans

The differences between grants and loans


min read

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6-out-of-10 small business owners use their own money to keep things ticking over. But using your own cash to fund your business clearly isn’t sustainable for most people. Instead of dipping into your own pockets, why not look into other business funding options, such as small business grants and small business loans.

And choosing between a grant vs loan is simple if you understand how they work. We’ll cover the differences between them as well as the advantages and disadvantages of each below, so make sure to read on!

What is a business grant?

A grant is a sum of money given to a small business. Grants can be awarded by:

  • the government
  • state or local authorities
  • private organisations.

To get a grant, your business has to meet certain criteria. Before you apply for one, it's best to think about how you would use it, as this can be one of the deciding factors. Businesses are given grants to facilitate their contribution to the economy.

Does a grant need to be repaid?

Grants are handy because they give you access to money that you don’t have to repay. However, it's important that you spend this money on whatever you’ve agreed with the lender , or you may end up having to pay it back. This is easy enough to do as long as you track your spending properly.

What can a business grant be used for?

As long as your lender agrees on the purpose, you can use grants for whatever you see fit; this might be research and development, training employees, or marketing your business. Where you are based (and what you do) can also affect whether you're eligible.

What are the advantages and disadvantages of a business grant?

Let's take a look at some of the reasons you may want to apply for a business grant.

  • A business grant is essentially free money, as long as you don't misuse it
  • Growth as a result of a grant can help attract potential investors
  • Grants can increase your credibility - getting one is competitive

But, here are some things you should also keep in mind.

  • The application process for a grant can be quite taxing
  • You can only use your grant for a specific purpose
  • Getting a grant is difficult, and many businesses aren't successful


What is a loan?

A business loan is money that a bank or a financial institution lends to you. Like grants, you need to use this money for business purposes, but there are fewer rules stating exactly how you must use the funds once you have them.

Do you need to repay business loans?

Yes. You do have to pay back a business loan, just like you would with a personal loan. How much you're allowed to borrow (and for how long) will depend on the lender. They’ll also set out a repayment plan so you know how much you have to pay back, what your interest rate is, and how frequently you have to pay back.

What can business loans be used for?

You can use business loans for most things. This may take the form of buying inventory, marketing, or hiring new workers. You can even use some loans to pay for costs like rent or utilities. Lenders will assess whether you’re eligible for a loan by looking at your credit score.

With an iwoca flexi-loan, you can get up to £500,000 whenever you need it - without the paperwork. Apply in just 5 minutes and get your funds as soon as you're approved.

The differences between grants and loans

To summarise, here are the key differences between a grant vs loan.

  • Let's start with the most obvious - you don't have to pay a grant back. This is one of the main draws for new business owners.
  • With loans, most people can make an application. Grants, however, require you to be within a certain location or industry. Even if you meet the criteria, there are no guarantees. Grants are also given to businesses with the expectation that their growth will stimulate the economy.
  • With loans, lenders base their decision on your financial stability –  they’ll assess your credit score.
  • And lastly - financial institutions and lenders give out loans. Corporations and the government give out grants.

Alternatives to business grants and loans

Both grants and loans can do the trick when it comes to keeping cash flow steady. But they're far from the only options available. You may want to check out some alternatives such as:

Line of credit. An extension of a certain amount of credit. You only pay interest on the money you use, and you can access it whenever you please.

Merchant cash advance. Receive a lump sum, which is paid back with a portion of each credit card sale you make.

Business crowdfunding. Raise capital from a large group of people, usually online. This works well if you have an audience that loves your early-stage product.

Don't rush into a decision. If you take the time to weigh up your options, your company will be in a much greater position for long-term success.

Iwoca’s Flexi-Loan provide you with fair and flexible finance without a drawn-out application process. Apply today and see how we can help you grow - it’s what we’re here for.


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Article published on
January 24, 2023
Last reviewed on:
December 11, 2023

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The differences between grants and loans

Cash flow is one of the most important parts of any business. Without it, it can be tough to stay afloat, let alone turn a profit. Grants and loans are two options to consider if you're looking for business funding to help maintain a healthy cash flow.