Financial assistance is provided by the state, banking institutions, and private organisations to other nations, corporations, organisations, and people like academics, scientists, and teachers to assist them in supporting their enterprises, initiatives, learning, and other initiatives.
This type of financial assistance exists in the shape of financial grants as well as various forms of loans. However, grants and loans are not the same thing and come with different conditions.
Key Takeaways
- Grants are non-repayable financial awards provided by governments, organizations, or individuals, while loans are funds that must be repaid with interest.
- Grants are awarded based on need, merit, or specific criteria, whereas loans are granted based on creditworthiness and ability to repay.
- Loans can be secured or unsecured, while grants do not require collateral.
Grant vs Loan
Grant is a form of financial assistance to an individual or organization that does not need to be repaid. Loan is money that is lent to a borrower with the expectation of repayment. Grants are awarded based on need, while loans require a credit check and may require collateral.
A grant is money that is provided to those in need in a certain region. Many rules and regulations allow the government, businesses, educational institutions, or individuals to give these funds to the needy.
This category also includes funds for educational scholarships. Scholarships are offered by the state or an academic establishment to distinguished pupils.
A loan is a sum of money issued by a banking organisation to a business enterprise or a person that must be returned within a set duration of time along with interest.
It is a regular exchange among financial institutions and corporations, but it is also applied to people, like education loans and personal loans.
Comparison Table
| Parameters of Comparison | Grant | Loan |
|---|---|---|
| Definition | It is government-funded monetary assistance given for a specified cause. | It is a monetary help offered to a customer by a lender that is repayable after a certain duration. |
| Repayment | It works like free funds and without any obligation to repay it. | Must always be returned within the given time frame or upon expiration. |
| Interest | There is no interest rate. | Based on the kind of loan, the interest percentage differs. |
| Availability | They are not given to just anyone or any organisation. | In comparison, there is a lot of accessibility. |
| Form | Monetary and in-kind | Cash |
| Purpose | Specified or authorized purpose | Any personal or commercial purpose. |
What is Grant?
Government grants are defined as cash or non-cash monetary aid funded by the state.
They are sometimes referred to as subsidies, tax exemptions, or cash bonuses. Specific previous and prospective requirements must be met to receive the funding, and the receiving party needs to comply with the requirements.
Grants can be given by the federal and provincial administrations.
They can also be given by any other government entity or institution (local, federal, or worldwide), charity, trust, or non-profit organisation, a corporation, an academic establishment, or any individual.
They are only supported for permitted uses. Furthermore, they are also granted to people affected by catastrophic disasters or to those who desire to establish their own enterprise to achieve self-sufficiency.
There exists a plethora of rivalry for grants. People who apply are evaluated based on gender, wealth, as well as other constraints imposed by the organisation that awards the money.
A grant provides only a certain chunk of money. It may not be enough to cover the total amount of the project.
Preparing grant submissions has become a specialised job over the years. Many organisations engage campaigners to conduct this job on their behalf. The grant drafting procedure comprises looking for, applying for, and evaluating qualifying grant money.
The greatest aspect of grants is that they are non-repayable and do not carry interest. To obtain the grant, a request is submitted to the competent body.
What is Loan?
A loan is an agreement in which a quantity of funds is loaned by the borrower and is repayable with interest at some point in the future. It is a type of debt that must be returned completely inside a specific time frame.
The rates of interest on various forms of loans vary. The loan payback period is expressly stated in the contract.
The loan may be repaid in several different ways: equivalency monthly instalments (EMIs) distributed over time, in a single payment at the end of the stipulated time, or on request. Loans are divided into 2 categories: secured and unsecured loans.
A loan from any banking company, brokerage firm, or mortgage originator can be used to secure funding. When a loan is obtained for a specific venture, the applicant must demonstrate the venture’s viability.
Furthermore, when a loan is taken out for any other reason, the borrower needs to meet specific qualifications before being approved by the financial organisation.
A loan can be of numerous types and for a variety of reasons: home loans, college loans, consumer loans, personal loans, company loans, etc. It is heavily dependent on the institution in question as well as the nation’s monetary structure.
Loans are frequently made over property or security to guarantee that the lending agency is protected in the event of non-payment. The payments are normally made in instalments, and each missed instalment might result in a penalty.
Main Differences Between Grant and Loan
- Grants are monetary assistance granted by the state to a beneficiary for a defined objective. A loan is when cash is acquired from a creditor or another banking organisation in the nature of credit.
- Grants are unearned funds that are not required to be reimbursed. In contrast, loan payback is required, whether in regular periodic instalments, a single amount, or on request.
- Grants have no interest attached to them. On the other hand, loans have a lending rate that fluctuates between banks.
- Grants have more severe conditions, and every application is meticulously evaluated, whereas loans have fewer constraints.
- When a person receives a grant, they are granted a defined sum of money. However, when they receive a loan, they may receive any sum of money.
- Grants can be cash or non-cash in nature, whereas loans are exclusively in cash form.
- https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2126288
- https://muse.jhu.edu/article/720771/summary
Last Updated : 13 July, 2023
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.
