Grants vs. Loans: What’s Right for Your Small Business?

Starting or growing a business often requires funding—but where should you turn? For many entrepreneurs, grants and loans are two common sources of financial support. While both can help move your business forward, they come with different expectations and responsibilities. Understanding the key differences can help you make the best decision for your situation.

What Is a Grant?
A grant is money provided by a government agency, non-profit, or private organization that doesn’t need to be repaid. Grants are usually given for specific purposes, such as hiring youth, launching a new product, or starting a business in a particular region or sector.

Pros of Grants:
No repayment: If you meet the terms, you won’t need to pay the money back.
Boosts credibility: Being awarded a grant can increase your business’s legitimacy.
Access to support: Many grant programs offer mentorship, training, or networking as part of the funding.
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Cons of Grants:
Highly competitive: Many applicants, limited funds.
Strict eligibility criteria: You may need to meet age, location, industry, or project-type requirements.
Time-consuming applications: The process often requires detailed plans, budgeting, and documentation.
Delayed timelines: Approval and disbursement can take time.
 
What Is a Loan?
A loan is borrowed money that must be repaid over time with interest. Loans are offered by banks, credit unions, and other lenders, including government-backed loan programs like the Canada Small Business Financing Program.

Pros of Loans:
More accessible: If you have a solid business plan and good credit, you may qualify.
Flexible use: Funds can typically be used for a wide range of business needs.
Builds credit: Successfully managing a loan can improve your business’s credit profile.

Cons of Loans:
Repayment required: You must repay the full amount with interest.
Personal liability: You may need to provide a personal guarantee.
Interest costs: This adds to your overall expenses.
Qualification hurdles: Lenders may require collateral, a strong business plan, and a good credit history.
 
Which One Is Right for You?
Here are a few questions to consider:
Do you meet eligibility criteria for a grant program? If yes, apply—it’s non-repayable money!
Do you need funding quickly or for general business operations? A loan might be more practical.
Are you prepared for the reporting or follow-up that comes with grants?
Can your business afford regular loan repayments?
Many entrepreneurs use both grants and loans at different stages. For example, a grant might help launch a business, while a loan supports expansion.
 
Let Us Help
At the Elgin/ St. Thomas Small Business Enterprise Centre, we can help you explore funding options available in your region, review applications, and connect you with financial institutions and grant programs. You don’t have to navigate it alone.

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Jessica Pietens, Small Business Advisor ​

With a degree in Business Administration specializing in accounting, Jessica has guided startups and established businesses through taxes, finances, and operations. Passionate about empowering local entrepreneurs, Jessica provides practical solutions to help businesses thrive. A proud St. Thomas resident, she is dedicated to fostering a strong local economy. Connect with her to explore how she can support your business growth