Government Grants vs Government Loans for Small Businesses in Canada
When starting a small business in Canada, one of the first steps of getting started with your small business is to ensure that you have enough capital to be able to do so. Capital, financing, funding, money are all the same, but what is the best way of getting your small business funded?
In this article we are going to compare the two available government funding options: Government Grants vs Government Loans. What is the better choice for your small business, and why?
Comparing Government Grants versus Government Loans
Before we get started, lets explain the general idea behind each of the two compared types of funding.
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Government Grants
Government grants, also known as awards, contributions, funding, free money, or bursaries, are funding provided by the government or various government agencies in order to help fund various activities your business may be in need of. Often referred to as free money because the general belief is that government grants are money provided to individuals and business owners that does not have to be paid back, making government grants the preferred choice among funding searchers.
Government Loans
Government loans are exactly as they sound, loans. However, they are provided by the government and not by individual banks. The government often has its own funding programs that provide loans, but in many cases government agencies team up with big banks in order to provide the loan to the end consumer, you and your small business.
Is a Government Grant or a Government Loan Better for Your Small Business?
Government grants, even though referred to as free money or non repayable money, is a very loose term. There are many different types of government grants, and before you decide that a government grant is the perfect solution for your small business, note the different types of government grants available.
- Non repayable government grants
- Partially repayable government grants
- Conditionally repayable government grants
- Partial contributions
Non Repayable Government Grants
The non repayable government grants are the very best types of grants a small business can obtain. A non repayable government grant does not have to be paid back, which means it is free money provided by the government for your small business.
Cons of Non Repayable Government Grants
Non repayable government grants are extremely difficult to get, not because they are unavailable, but because there are so few and the funding purposes are limited. Despite this, millions of funding dollars are handed out each year to help small business owners through these grants.
Partially Repayable Government Grants
Partially repayable government grants are only partially repayable. For example, a grant of ten thousand dollars may require you to repay only a percentage, such as twenty five percent. This makes it a combination of a government grant and a government loan, allowing you to keep the remaining portion without repayment. Each funding program may have different terms that must be followed.
Conditionally Repayable Government Grants
Conditionally repayable government grants are repayable like a loan, but they include specific conditions regarding when the money must be paid back and how much is required. These grants are usually negotiable, so small business owners should be prepared to negotiate realistic terms.
Partial Contributions
A partial contribution is another beneficial type of grant, but it requires an initial contribution from the business owner. For example, a small business may receive a partial contribution of fifty thousand dollars that does not need to be repaid, provided the business matches a portion of the funding. Each government agency may have different requirements, so it is important to review the terms before applying.
Government Loans
Government loans are an easy way to get your small business funded and started. There are many different types of government loans that small business owners in Canada may be able to obtain.
- Low interest government loans
- No interest government loans
- Government guaranteed loans
Low Interest Government Loans
A low interest government loan is one of the most common types of government loans provided to small business owners across Canada. These loans usually come with better terms than traditional bank loans.
No Interest Government Loans
No interest government loans are similar to low interest loans but include specific terms regarding the duration of no interest. Many businesses obtain these loans with no interest for the first year, after which standard industry interest rates apply.
Guaranteed Government Loans
A guaranteed government loan does not mean the loan is automatically approved. Instead, it means the government or a government agency acts as a co signer on a bank loan. This is similar to having a parent co sign a first car loan. The business owner agrees to both bank and agency terms, while the government agency takes on part of the risk if payments cannot be made.
Final Thoughts
Most of the time, small businesses do not get to choose between a grant or a loan. Instead, business owners apply for what is available based on factors such as location, industry, and funding needs. The remaining eligible programs may include grants, loans, or both.
Many small business owners focus only on grants and are often denied, as grants are less common than loans. There are far fewer grants available, making it a numbers game. When applying for funding, it is best to apply for all available programs that may be suitable for your business.