What is the difference between a grant and a loan?
Repayment and Interest
The core difference is repayment: grants provide funds that you do not pay back, whereas loans require repayment over time, usually with interest. Grants are often awarded by government agencies, foundations, or corporations to support projects that benefit the public or a specific cause.
Loans, on the other hand, are offered by banks, credit unions, and online lenders, and they come with terms like interest rates, fees, and repayment schedules. Even so-called 'forgivable' loans may convert to grants if you meet certain conditions, such as maintaining jobs or using funds for approved purposes.
Eligibility and Application
Grants are typically competitive and require a detailed application that explains how the funds will be used and how they will benefit a community or cause. Loans focus more on your ability to repay, so lenders look at credit history, income, and collateral.
Grants often have strict eligibility rules—for example, only nonprofits, small businesses in certain industries, or individuals in specific circumstances can apply. Loans are more broadly available, but the cost of borrowing can add up significantly over time.
- Grants: no repayment, but strict eligibility and reporting requirements.
- Loans: must be repaid with interest, but easier to qualify for.
- Grants often fund public-benefit projects; loans can fund almost any business or personal need.
- Some government programs offer hybrid options, like loans that become grants if you meet job-creation goals.
Common mistakes
- Thinking grants are free money with no strings attached—most require detailed reporting and compliance.
- Assuming you can use grant funds for any purpose; they are usually restricted to the project described in your application.
- Believing loans are always worse than grants; sometimes a loan is faster and more flexible for business needs.
