Small Business: Government Grants vs Government Loans

Government Grants vs Government Loans?

That is a question that often comes up from many small business owners and fresh new faces here at UKStartups.org, so what is actually better for you?

Let me first give you a quick overview of what each one is:

Government Grants: Often government grants, also known as subsidies, bursaries or contributions are simply money or funding that is provided to an individual or a business organization by a government or corporate body in order to help that individual or business achieve success.   In this case, government agencies across the country are the ones providing the funding for various purposes in order to help and grow and stimulate the economy. Government grants are typically non repayable, but there are a number of different government grant types, such as;

• Non repayable government grants
• Partially repayable
• Conditionally repayable
• Partial contributions

Government Loans: Not much different then a government grant, but government loans are repayable. They still offer  a business owner the funding they may need, however with different terms then a grant. These terms may be as simple as pay the money back, on a schedule, sometimes with interest, sometimes with low interest and sometimes with non interest at all. It gives a business owner an opportunity to obtain the funding, without needing to be so involved with the big banks. In fact, there are guaranteed government loans, which simply mean that once you are approved for funding, the government acts as a co-signer on your loan – sort of like when you were a student and you needed your parents to co-sign on your first car.

So what is a better option for a small business owner in the UK?

Before this can be answered, there are many factors to be considered. Here are some examples of these factors:

• Where are you and your business located?
• What industry is your business in?
• What do you require the funding for?
• How much funding do you require?
• How is your business credit (or personal credit)?
• What does your business plan look like?
• What time of the year are you thinking of applying?

They may not seem like they are important factors, and if you are like most people reading this right now, you are probably saying “oh crap, they look at my credit!” But before you do say it, hold on.

Why hold on?

Well because while credit is very important, it is only one of the factors that is considered. Think about it, let’s just say you have 20 years experience in a field, and you decide you want to start your own business. Your business plan shows you will be very profitable in the first quarter of the year, but your credit isn’t the greatest. Do you think that will stop a government agency from saying no?

All of the factors have to be considered. Not one is more important then the other when looking at applying for government grants or government loans for your small business.

When you go in to apply for a funding programme, you don’t really decide on “im going to apply only for grants because that’s free money”, or ” i dont want loans”, but it is really decided for you.

Certain regions, certain industries and certain funding needs may only offer government grants, or government loans. So you go based off of that.

If you are looking for government funding, any money is good money as long as it can help you achieve your goals.

In fact, we have success stories here at UKStartups of individuals who have been able to start a business with a government loan, which later opened the door for a government grant from the same agency.

So one lesson to learn from this article is to not be too picky when applying for funding; take what you can get if you really need it and want it. While there is a difference when it comes to government grants and government loans, it’s not the only thing to look at when applying.

It is important to remember that not all government grant programmes are available for every location industry and funding need – nor are they always easy to get. Government grants and much harder to obtain than government loans, as there are far less of them with way more applicants looking for the “free money”. So logically speaking, if you do find that you may be eligible for ether a grant or a loan, know your odds.