Business Grants Vs. Loans: What You Need To Know
Business Grants Vs. Business Loans: What's The Difference Between Them?
When you apply for grants and business loans for small businesses, both help you get money for your business. But grants and loans for small businesses are two very different things. In general, grants don't need to be paid back. Loans, on the extra hand, must be paid back.
People who get loans have to pay back the money they earn. People who get grants don't have to. Grants can be given by government departments, trusts, or corporations to people, businesses, schools, or non-profits. Grants are notoriously hard to get, so if you apply for funding and are turned down, look into other options, like business credit cards. Grants and loans are two different things.
Here are more things to know about them
Grants are taxed money. The IRS usually thinks that business grants are money that should be taxed. This will depend on how your business is set up and reporting your income to the IRS. In general, expect that a grant of any grants will go to Uncle Sam.
Your accountant or tax professional can help you avoid this possible downside to getting a business grant by asking them to factor any grant money you get into your estimated quarterly payments (if applicable) or help you figure out how much taxes your company will owe and set aside that money so you don't have to pay more than you thought you would when it comes time to pay your taxes. IRS rules say that loans are not income.
Interest is charged on Loans. Grants are free money in every sense of the word. When you get even a cheap loan, though, there is a price. Depending on the type of business financing, you could face APRs ranging from 5% to 150%. This is based on your personal and business credit scores, cash flow, years in business, collateral, and many other things.
If you get a grant, it won't help you get good business credit. It's one of the things that frustrates people who borrow money of any kind: It takes money to build up credit, and that frustrates people. There must be some tradeline to build a business credit history with the major commercial credit reporting bureaus (Experian and Dun & Bradstreet are two). Once your business grant is over, you may still need more money to grow and expand your business. It doesn't show up on any personal or business credit report if you get a business grant.
Grants Are in Direct Competition with Other Funds. Loans aren't, though. There's no way to know if you'll get a business grant or a business loan. On the other hand, Loans aren't a choice between you and another business for the same money. A business lender will likely give you a business loan if you show them that you have good credit and that your business finances are in order. Even if another business in the community wants to get a business loan, you're likely to get one.
On the other hand, business grants are usually given to just one or a few people because there aren't many of them. Besides being a great business, you must also be the best business for the grant. If you want to get a license with many different rules, it's not easy.
Loans May Have Consequences. If you don't make a payment or don't pay back your loan, you're going to have to pay some money back. Different consequences depend on the type of loan and how much you put on the line to get the money. They can include things like repossessed equipment, a business lien or UCC filing, a bad credit score for you or your business, bankruptcy, and more.
With a business grant, if you don't use the money wisely and spend it on something your business wants but maybe doesn't need, your most significant risk is that you'll miss out on something else. Keep in mind, though, that more extensive grants, especially federal grants, may have specific reporting requirements, and they may only give you the money when particular goals have been met, so keep that in mind.
In general, there are good and bad things about business grants
Many business owners are wary of the free money that business grants can give them for several reasons. It would benefit if you believed in these things when applying for grants. Every gift has different rules, terms, and conditions, but here are some things to think about. As you saw above, business grant funds are taxable income for the IRS. Your business can use the funds, but you'll have to ensure that you don't spend all of them without planning how much extra money you'll make.
Grant applications for businesses take time. You're already a busy business owner who wears a lot of hats. Do you have time to apply for every business grant opportunity that comes your way? It's a good thing to say about business grants. The chances of winning the license can be low, depending on the size of the contest.
You have to figure out if your most valuable resource, time, is worth it. Getting small business grants may require a lot of work. Many business grants have a part where you have to use social media to campaign for or share something public about your grant application.
If you have many supporters on social media, that's not a bad thing. But campaigning does take more time, and some business owners might not want to be as public about their search for money. A small business grant is a good thing. Explore which grants and loans your business is eligible for because the money you don't have to pay back is cash that helps your business grow.
Every Small Business Needs To Know These Five Essential Ways To Get Money
The guys at Collective Arts had a big idea, a big group of fans, and a good beer. But when it came to getting money, especially from big banks, their story didn't matter at all. A small business that doesn't make money has a history and doesn't have any customers is very risky. There are other places to look for financing to help your small business grow and thrive.
Friends and family
Contacting your closest friends and family is a crucial investment move for small businesses. A Deloitte lecturer at the University of Ottawa's Telfer School of Management says that buddies and home invest $8 billion a year in Canadian companies. They tend to be one-time investors, but they invest a lot.
In his study of informal finances, he found three times more love money than money from angel investors invested each year. Most of it goes into manufacturing and retail. Asking friends and family for money can be scary because you're asking them to take a risk, says Mark Evans, the founder of ME Consulting. Unless, of course, you can show them your business plan and be clear about the risks.
It would help if you asked for a loan with a promissory note that says how much you'll pay back and when. Or you could give a piece of ownership and give money straight up. Starting in May, Ontario businesses will sell some of their stock to family and friends. This choice is already known in other Canadian provinces.
Both parties must sign a risk-awareness form. Things can get complicated because it's hard to figure out how much money a startup is worth, and friends and family aren't usually good business investors. Evans says that you should hire a lawyer to set up an equity structure.
Regardless of how you do it, friends can be a big help. They can help you get more money in the future by giving you a lot of credibilities. If you can prove what you're doing, you show the market that you have something unique, says Evans. No one likes to be the first to purchase a new product.
Government money
The government gave $5.86 billion to Canadian businesses in the first half of 2014, but many people ignored this money. In Sahar Ansary's words: "Government funding is like low-hanging fruit. It's easy to get."
Small businesses find it hard to understand because they don't know where to look or even get it. That's why Fundica was made: to help small enterprises to find free online search tools that use intelligent filters to match a company's profile and funding needs with a wide range of government programs. According to Ansary, hiring and innovation projects usually get more money from the government.
Bootstrapping
It's the most petite sexy of the bunch, and it doesn't get much attention. Bootstrapping is financing that you do yourself. Before you get any money from anyone else, you have to make a very detailed budget and run your business on very little money.
Mark Graham, the owner of Toronto-based promotional products company Rightsleeve, started his business in 1997 with just $3,000, a home office, and no employees. He made Red Bull toques and Koodo action figures with his designs. He collected receivables and charged clients upfront for their work to keep track of his cash flow.
As the owner of a business that sells products, he made sure not to have too much stock. His website and office space didn't cost him any money until one year after making $100,000. Because of this, he's been able to start his own business and earn $5 million in sales without ever meeting with a venture capitalist. Says Graham, there will be no risk of giving up equity or having too much debt.
Credit Unions
Banks deal with cold, complex numbers, which is why so many startups get the cold shoulder from them. Banks don't buy ideas. In Evans's words, they want to have a product and run a business. Credit unions can also help small and medium-sized businesses get financing. They did better than all the banks when it came to meeting the needs of small and medium enterprises.
Angel Investors and Venture Capitalists
If you don't have money, there is someone in the world who wants to help you. These people invest anywhere from $10,000 to $20 million in new ideas. It's also possible to set up syndicated investments with other angels and venture capitalists. There are also groups of angels that can help set up these types of investments.
Investors who invest in small businesses, like angel investors and venture capitalists, know that some of their investments won't work out, but they also know that those who do well will more than make up for it. Janet Bannister is the partner of Real Ventures, a Montreal venture fund that invests in early-stage businesses. When she started her company, she wanted to help startups that were just getting started.
She also wanted to help FundThrough, a Toronto-based marketplace that connects small businesses with lenders. AngelList, FundersClub, and Gust are online platforms that connect entrepreneurs with accredited and active angels and VCs in their area and market. Search engines like Fundica and The Funding Portal can help owners find more private backers, as well.
How A Startup Business Loan Can Help You Make More Money From Your Small Business
To get money for an early-stage business, think outside the box. Even though the SBA gives some money to new companies, you're more likely to get it from other places. It is an excellent example of this. You can get financing for things like this.
Finance or Lease the equipment you need in situations where you need money. This frees up cash for things you can't afford to pay for. You can also get a loan because you have good personal credit, making it easier to get than a traditional term loan. Then, here are some examples of how businesses get money to start up.
Financing of equipment
Equipment loans are similar to standard loans in that they have monthly repayment terms over a set period. They are used to pay for things like equipment and machinery. However, the money is used to buy equipment or machinery.
If you don't pay back your loan, the bank can take your equipment to pay for their lost money. (Keep in mind that some SBA loans can be used to pay for some equipment.) In particular, the SBA 504 loan can help you get money to buy more extensive kits and real estate.
Another thing you should think about is leasing equipment. Computers, pizza ovens, and even the furniture in your restaurant may be leased. It would benefit if you held this in mind when you start a business. Both TimePayment and LendSpark offer financing for new equipment.
Business Credit Cards
People think credit cards are safe and easy ways to pay for things, but they also give people the chance to get a loan without showing collateral. This is called a line of credit. So business credit cards can be a great way to earn money to start your own business.
There are other things they can do to help you start your business off on the right foot, such as allowing you to separate your finances from your business finances. Issuers will look at your credit scores and combined income for a business credit card to see if you can get one (personal and business). They may not ask for collateral, but they usually ask for a personal promise. The best thing about most business credit cards is that they come with great rewards programs and gifts when you sign up!
A good thought would be to select a card that has a 0% introductory rate offer for a while. If you do this, you can make purchases and carry a balance for nine, 12, or even 15 months without spending claims while you start your business. During a recent Federal Reserve Small Business Credit Survey, 53 percent of small businesses said that they used credit cards to help them pay for things like rent or payroll.
SBA 7(a) Loans
The U.S. Small Business Administration (SBA) accomplishes give out loans, but it helps people get them. As long as the SBA approves the lender, they can make loans under SBA programs at a low rate. You can obtain a small business loan from the SBA in many different ways.
The 7(a) program, which is the most popular, lets you get up to $5 million in loans. People thinking about starting a business might wonder if they can get an SBA loan. The 7(a) loan program gave small businesses money in the 2021 fiscal year, and 17% of that money was given out to new companies.
There isn't a quick or easy way to get an SBA loan. However, the SBA Express loan program, which usually gives out loans of up to $350,000, tries to speed things up a little bit. There are many things you need to do before you can apply, like have good credit.
If you want a 7(a) loan of less than $350,000, the SBA wants you to have a minimum FICO SBSS credit score of 155 to avoid having your credit checked by a person. SBA 7(a) loans for new businesses are more likely to go to people who already have experience in their industry (like a veterinarian who wants to start her practice) or people who buy an existing business, like a franchise.
Because the terms are good, this is an excellent way to get money. Companies that want to buy real estate or new equipment may get help from SBA 504 loans, while businesses that want to trade internationally may be able to get help from SBA Export Loan programs.
SBA Microloans
SBA microloans are made by approved intermediaries, such as community development financial institutions (CDFIs) and other non-profit organizations, who make the loans for small businesses. It's possible to get a $50,000 loan, but the average loan is closer to $14,000. As a general rule, an SBA microloan lasts about 40 months. It can last up to 72 months, but the average is about 40 months. You can get it from a bank or credit union if you need working capital. You can also use it to buy inventory, supplies, machinery, and furniture.
Some other Microlenders
The SBA isn't the only way to get money for microlending. Microlenders are often non-profit groups that help small businesses get money in smaller amounts. In terms of microlenders, don't forget to look at these two options:
Accion: Loans ranging from $5,000 to $100,000 are available via Accion's CDFI partners. It usually isn't very strict about credit requirements, and it helps people who apply.
Kiva: Kiva runs on a primarily community-based, trust-based platform. As a small business owner, you can crowdfund business loans from people who want to help you up to $15,000. These loans have a 0% APR and are given to struggling entrepreneurs who have proven their character, invited their network of lenders. We're unable to get other financial help. We have a business that is thought to impact the people who live in their area positively.
For Invoice Financing
You can avoid cash flow problems caused by long invoice cycles by getting invoice financing (different from invoice factoring). Invoice financing is a convenient but usually pricey way to avoid cash flow problems if you get paid by your customers through invoices. This is a quick way to get your money that doesn't require a lot of paperwork. You can obtain your cash in as little as a day.
How To Find A Small Business Grant
A quick tracking on Google will offer you a lot of business grants. There are so many options that it can be hard to choose the best one. But there is rare help that can help you find the proper grants for your business, help you with the application process and help you find grant opportunities that can't be missed!
Grants.gov
How many people wouldn't want free money from the government? For all federal government grants, Grants.gov is the place to go. It's a great place to look for gifts, but small businesses may be disappointed to learn that many contributions aren't open to them.
For example, the site has grants for people and organizations and commissions for schools, local governments, and individuals. You'll have to go through all of them to find the ones that are right for you. Because small businesses can get grants from national companies, they must meet specific rules about how big their companies must be.
If it seems complicated to get a business grant from the government, that's because it can be. Here are some known limitations and conditions that the federal government uses to figure out if a business is eligible for a grant:
Grants are not given to people who want to start a business.
Grant money can't be used to pay off debt or to pay for the costs of running a business.
State and local grants that the federal government gives out may be given to groups that help economic development.
GrantWatch
Another database called GrantWatch has grants of all kinds, but it's a paid service that you'll have to pay for to use it. There is an excess of assistance from the federal government, the state government, and other organizations that give money to people who need it. This is how it works: The site is constantly being updated, and grants that have been closed are archived. You can examine through better than 25,000 grants by kind to see those that support small businesses like yours.
Small Business Development Center
It's time to check out local and state business grants after you've checked out gifts from the federal government. You might be able to find some of these on your own, but there's a free, local resource that might be able to help.
Small Business Development Centers are the best friend a business owner could have. Many small business owners are mentored by local, regional, state, and national offices. They help them figure out how to get business for their businesses, market them, and link them with other local business owners.
One thing they can help you with is how to get a grant. Many people don't pay as much attention to the local business grant scene as SBDC advisors. During your search for small business grants, you can't afford to make this one meeting.
SCORE.org
SCORE is a nonprofit group that is part of the Small Business Administration and gives small business owners in the United States free tools and help. Entrepreneurs who need help or advice can get help from SCORE, a free resource like the SBDCs. They have a lot of local experts that you can connect with. A SCORE mentor might help you find grants in your area or look over your pitch to make it more appealing.
At Your Local Library:
Among the many, many things local libraries do for free or at a shallow business for businesses help find grants, which is one of the many. You can ask your librarian for help with this. These people are trained researchers who have access to many different databases, like the one above. With MatchFactor, you're three times more likely to get a business credit card than if you did it on your own.
Nav's MatchFactor tool lets you see right away which business loans and credit cards are best for you based on what your business needs are. A library may already have a relationship with a local Chamber of Commerce or business group, so they may be able to help you find experts who know the local area and help you find business grants that are specific to your site.
How do I receive a commission for my small business?
Each grant has its own set of rules that you must meet before applying. Make sure to glance at these first, so you don't destroy your duration (and the judges' time) using gifts you don't allow for. Some people might want you to work in a particular field. Others may want you to be in business for a certain amount of time or make a certain amount of money. You may have to track detailed rules when you spend the money.
How to Get a Small Business Grant
Work smart and hard, too. Don't bother filling out an individual grant application. Instead, make a resume for your business that lists your answers to the questions business grant-givers ask. Grants are free money, but that doesn't mean you don't have to work for them.
Some applications will be different based on what they need. For example, if you apply for a grant from a local government, you might have to explain how your business's growth and development will help the local economy. If you use it as a gift from a private company like FedEx, you might have to make a video to show how your business will benefit the community.
When you apply for a business grant, here are a few things you might need to say:
Time spent in business.
How many people work for you?
Monthly or yearly income
How the money will be spent
This is your business's "elevator speech."
Your Employer Identification Number is the number on your business card (EIN)
You have social media handles (LinkedIn, Facebook, Twitter, Instagram, etc.)
A photo of you (and, if appropriate, your partners or offices).
I Want To Start A Business. How Can I Get A Business Loan?
Where do you start? An excellent place to start is with your credit scores and business credit scores, which show how viable your business is to pay its debts. You can check both your business and individual credit scores with Nav, a company. Having a fair honor score can put you in a much better position than having a bad credit score. If you like to enhance your company credit score, you'll need to work hard.
Another thing to think about is how the lender sees your business:
Is your new business risky?
What do you know or have done in the past? It's essential to know about your credit history.
How quickly will the business start making money?
If the business were to fail, would there be anything that could be sold?
It can answer many of these questions if your business plan is well thought out and well-written. You'll then require to reason out what kind of startup financing you want. Make sure you know what the lender will be looking for. The application for a microloan is likely to be very different from the one for a business credit card.
The best way to figure out which financing products you want to apply for is how much money you can afford each month. When you've chosen a loan type and a lender, you can start filling out the form. If you've already done the work, this won't take long.
figuring out how much money you need
What do I need the money for? Let's call it your loan goal. It's essential to calculate how much cash you'll need to meet your loan goal. That's the amount you should look for. There is a better chance of getting the money you need if you can tell a lender, crowdfunding campaign, the SBA, or your uncle, Fred, what your loan is for. Then, you won't have to deal with the stress and consequences of borrowing more money than you need, which will save you money.
How to Get a Loan for a New Business
A startup's chances of getting funding may differ from one lender to the next, but in general, you can expect a few things to be considered. First, you need to pay. Establishment businesses may have a credit history, but your new business may not have one yet. Make sure your personal credit history and scores are up to snuff if lenders look at them. A good start is essential even if you haven't been in business long. Have a clear business plan and sales strategy to show to lenders if they ask.
To get a small business loan, what must be done?
The requirements for each lender can be very different, but you should be ready for the following:
It's a new business plan that includes your growth and marketing strategies.
You can get your credit report and score for free from all three major credit bureaus—review with the lender to visit if they have copies.
A business plan shows how the company will make money and how much it will cost.
For both your business and your tax accounts, you need to send in your tax returns and any supporting IRS documents (including personal records for all owners or registered agents of the business).
Any licenses and registrations that your state requires for you to do business there.
All of the financial documents that the judge would consider necessary (including bank statements, unpaid invoices, credit card sales, and accounts receivable due to you, if available).
Any legal agreements that would be important (franchise, incorporation, leasing).
Deposit the loan money into a bank account.
A new business may not have credit reports or tax returns because they are unique. When the lender does this, they might look at your credit, tax returns, and a personal financial statement to see if you can repay the loan. On the other hand, if you are buying an already-existing business, the lender will likely want to know more about that business.
Once you've loaded out the application, you may have to stay. People can get approved for some financing options in just a few minutes, but it could take weeks or even months for other options. Before starting the application process, make sure you know how long it will take to get a job. You don't want your urgent business needs to be put on hold or for you to miss an important meeting while you wait for a loan.
I have bad credit. How do I get a loan for a new business with bad credit?
You can't get a loan if you haven't been in business for at least two years and made a lot of money. Lenders will have to use your credit score to figure out how risky you are. A business owner with bad credit will have a hard time getting a loan from almost any bank. If you have poor credit or no recognition, you might want to look into some microloans and crowdfunding options. They might help you get a business loan even if you don't have a lot of business.
With Nav, you can keep an eye on your credit score and see what lenders see when you apply for a loan. As soon as you sign up for a free business account on Nav, you can see your business credit report and score for free. If you check your credit, it won't hurt your score.
Loans for starting a business
Operating your own company can be difficult, and starting a company might be the most challenging part for people who want to start their own business. Don't think it's impossible to get a loan for a new business because it can be hard to find a lender.
Don't be afraid to look into other ways to get money. It might be a good idea for your business to get a microloan from a nonprofit lender, or it might be worth taking a risk with a business credit card if the interest rate is low. Business credit cards for startups can help you build good business credit for your business, and if you need to, they could help you fill gaps in cash flow.
When you're looking to borrow money, be ready and do your research and due diligence. Don't overestimate your business and your ability to repay the loan, even if you get a lot of money. Before you start a business, remember why you want to do it! Isn't it hard to find and get an early business loan? If you have the right motivation and business, though, you can push through and finish the job.