Choosing between a business loan and a business grant

A business loan is a sum of money that is borrowed and must be paid back, usually with interest.  

You can get a business loan from banks, credit unions, non-profit organisations and online lenders. Each lender will provide something different, so it’s important you shop around to find the loan most suitable for your business needs.  

Loans are usually paid back over a repayment term specified at the time of the application. This can range from six months to seven years, though longer repayment terms can be agreed depending on the loan amount.  

Business loans can be secured for all kinds of reasons, from short-term cashflow support to longer-term expansion plans.  

There are a lot of different types of loans, but the main two are ‘secured’ and ‘unsecured’.  

• Secured business loan is backed by some sort of security, usually an asset from the business’s balance sheet. Property is usually used as security, though other assets can also be used.  
• Unsecured business loan is not backed by any business asset, rather, the person applying for the loan will need to provide a personal guarantee. This means that if the business is unable to pay back the loan, the borrower must repay it personally.
  
  These types of loans are helpful for businesses that don’t have many assets, or are looking for a quick cash injection, but they typically have higher interest rates than secured loans.  

A business grant is a sum of money awarded to a business with the aim of helping it achieve a certain goal.  

There are many different grants awarded for different things. These can range from large grants to support business expansion and job creation, to smaller ones that focus on specific areas of improvement, like making your business greener or helping with digital adoption.  

Business grants usually don’t need to be repaid, though if they have been awarded to help meet a specific goal (like creating a certain number of jobs or increasing turnover by a set amount) a follow up with the fund provider may be required.  

To find out what grants could be available to your business, check out UMi’s Grants, Funding and Finance finder. 

The grants available to your business will largely depend on a variety of factors, including the location of your business, its size, the sector it operates in and the type of support you are looking for.  

Typically, you won’t find a grant that will just inject money into your business so your bank balance looks healthier. Grants are designed to invest in businesses to improve them in some way.   

Sometimes, financial backing only represents a percentage of the support a business receives, and it is rare a project will be 100% funding. Some grants require the business to match the funding being offered. With most grants, you will not receive funding until the business improvement has been completed, so initially you’ll need to spend the money yourself.