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Why Grants are Better Than Loans

A grant can be defined as financial assistance given to an individual or an organization for a specific purpose without having to repay it back to the grantor.

A loan can be defined as financial assistance given to an individual or an organization which has to be repaid to the loan provider. Loans generally come with an interest payment but the interest rate can be 0%.

Advantages of grants compared to loans,

The main advantage of a grant will be that a grant will not have to be repaid back to the grantor. On the other hand the recipient of the loan will have to repay the loan on time.

For most of the loans interest will have to be paid. But a grant will not have any interest payment. This will change if the loan is an interest free loan.

To receive a grant there has to be a specific budget, objectives, time frame and a clear business plan, but you will not need all of these to get a loan, simply if you have assets you can get a secured loan. This means that if you fail to repay the loan these assets will belong to the bank. The company will not be able to use these assets the way they want because of the secured loan. Thus grants will create fewer problems to the company.

Since a grant will have a specific budget, expenditure will be controlled. The funds will have to be used to achieve its key objectives and the management will be focused on achieving its objectives. But when it comes to loans (other than interest free loans which are given for a specific purpose) the money can be used for any other purpose since there will not be much pressure from the loan provider to achieve the company objectives, all that he will want is to get his money back with interest if applicable.

To get a grant for the second time the objectives of the last grant will have to be met. Thus it is most likely that the funds will be used properly and the expected goals are achieved. To get another loan all you have to do is to repay the loan with interest. A common way of settling loans is by taking another loan from another loan provider. This means that loans can mess up you company’s financial situation as a result of lack of focus. Grants will help to manage the business better.

Since loans have to be repaid the usefulness of loan money will be limited. For example if a loan is taken to provide a better working environment for employees there will not be any value addition to the end product and as a result the revenue will not increase. Therefore it is unlikely that a company will take a loan for this purpose. A grant will be ideal for this situation because if the objectives are met which is up to the expected standard there will be no need to generate more revenue. Although there is no direct value addition to the end product a motivated workforce will save a lot of trouble and money for the company. These are things which can only be done by using a grant.

Therefore taking a grant will be more advantageous for any kind of business compared to loans which has fewer advantages.

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