Business loans vs grants | Which is better for your business?

Compare small business loans vs. grants

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Find out when — or if — your business could use these two funding tools.

When most people think of business financing, they tend to think of loans. To be fair, many business owners end up taking out a business loan since they’re often the easiest and fastest way to get funding.

But before you fill out that preapproval application, you might want to take a look at grants are available. They’re not for everyone — they’re competitive and come with lots of requirements. But, because you don’t have to pay the money back, they could end up saving you a lot of money.

Check out how loans and grants compare to decide which option could be worth your while.

OnDeck Small Business Loans

OnDeck Small Business Loans

Among the largest online business lenders offering term loans and lines of credit at competitive fixed rates.

  • Minimum Amount: $5,000
  • Maximum Amount: 500000
  • Loan Term: 3 to 36 months
  • Simple online application process with fast decisions
  • Dedicated loan specialists and loyalty benefits
  • Must have been in business for at least one year with annual revenue of $100,000+
  • Must have a personal credit score of 500+

    How do small business loans differ from grants?

    Small business loans are funds that you borrow to cover business expenses. You pay back your total principal plus interest and fees. Most small businesses can find lending options, even if they haven’t been around for all that long.

    Unlike loans, small business grants are business financing that you don’t have to pay back. They’re often funded by the government, foundations or corporations and designed to help a specific type of business or business owner.

    It may sound like grants are free money, but searching and applying for one your business qualifies for takes a lot of time and work. Also, there’s a reason some people make a living writing grant applications: Grants are extremely competitive to get.

    Business loans are ideal for:

    Business grants are ideal for:

    • Nonprofits
    • Educational organizations
    • Businesses in economically underdeveloped areas
    • Minority-, woman- or veteran-owned businesses

    Learn about specialized business loan and grant options for those who identify as a…

    What are the benefits of small business loans and grants?

    Small business loans

    • Open to most small businesses, subject to minimum revenue and time in business requirements.
    • Offers many repayment options for added flexibility.
    • You can typically get your funds in just a few days to weeks.

    Small business grants

    • You don’t have to pay back the money you receive.
    • Your business takes on no risk of default.

    Compare top online business loans

    Rates last updated June 20th, 2018
    Name Product Product Description Min Loan Amount Max. Loan Amount Requirements
    LendingClub Business Loans
    With loan terms that vary from 1 to 5 years, enjoy fixed monthly payments and no prepayment penalties through this award-winning lender.
    $5,000
    $300,000
    2+ years in business; $50,000+ in yearly sales; No bankruptcies or tax liens; At least 20% ownership of your business; Fair or better personal credit
    OnDeck Small Business Loans
    A leading online business lender offering flexible financing at competitive fixed rates.
    $5,000
    $500,000
    Must have been in business for at least one year with annual revenue of $100K+. Must have a personal credit score of 500+.
    LoanBuilder, A PayPal Service Business Loans
    Customizable loans with no origination fee for business owners in a hurry.
    $5,000
    $500,000
    Annual business revenue of at least $42,000, at least 9 months in business, personal credit score of 550+.
    Kabbage Small Business Line of Credit
    A simple, convenient online application could securely get the funds you need to grow your business.
    $2,000
    $250,000
    Must have been in business for at least 1 year. Revenue minimum is $50,000 annually or $4,200 per month over the last 3 months.
    Lending Express Business Loan Marketplace
    Lending Express Business Loan Marketplace
    $5,000
    $500,000
    At least 3 months in business and $10,000+ in monthly revenue. Your business might also qualify if it has at least 6 months in business and $3,000+ in monthly revenue.
    National Business Capital Business Loans
    Get a large business loan to cover your financing needs, no matter what the purpose is. Startups welcome with 680+ credit score.
    $10,000
    $5,000,000
    Your company must have been in business for at least 6 months and have an annual revenue of at least $180,000.
    Fora Financial Business Loans
    No minimum credit score requirement and early repayment discounts for qualifying borrowers.
    $5,000
    $500,000
    Business age 6+ months. Monthly revenue $12,000+. No open bankruptcies.
    Excel Capital Management Small Business Loans
    Get personalized financing options that suit your unique business needs in just a few simple steps.
    Varies by loan type
    Varies by loan type
    Your business must operate in the US, be at least 1 year old and have monthly revenue of $15,000+.
    Balboa Capital Small Business Loan
    Short-term business financing with no minimum credit score or physical paperwork required.
    $2,500
    $500,000
    Must make $100,000 in annual revenue and be established for at least one year prior.
    LendingTree Business Loans
    Compare multiple business financing options in one place including: small business loans, lines of credit, SBA loans, equipment financing and more.
    Varies by lender and type of financing
    Varies by lender and type of financing
    Varies by lender, but you many require good personal credit, a minimum business age and minimum annual revenue.

    Compare up to 4 providers

    What are the drawbacks of small business loans and grants?

    Small business loans

    • You pay back the principal you borrow plus interest and fees.
    • Options can be limited or expensive if your business is new.
    • Your business takes on the risk of damaged credit and paying fees if you default.

    Small business grants

    • Fewer options — and, therefore, more competitive to get.
    • The application process can be time-consuming.
    • It can take a long time to see your funds if the grant is approved.
    • You’re typically restricted as to how you can spend the money.

    Which borrowing option is better for me?

    If your business had been around for over a year and have annual revenue of $100,000+, you could likely qualify for a business loan — meaning a business loan could be a better bet if you don’t qualify for a grant.

    Business loans may still be a viable option for businesses that may seem like a good fit for grants. Even if your business, let’s say, is a minority-run education nonprofit in an underserved community, you might still want to consider taking out a loan. Loans can get you funds quickly, and they don’t require the extensive time or staff you’ll need to apply for a grant. They might also be better for businesses that need access to cash to cover day-to-day expenses during an off-season.

    That said, grants can be a solid resource if making money isn’t your primary objective. Government and foundation grants are typically designed to help businesses that in some way contribute to a greater social good. (An exception is corporate grants, which focus on building up a specific sector.)

    Even if a loan meets your immediate needs, it’s worth exploring whether there’s a grant for your type of business. In some states, you might be surprised to see less competitive business grants for smaller amounts that could help your business expand in the future.

    Can I get a loan or a grant if my business is new?

    Finding a loan or grant for a startup can be extremely difficult. Even the most lenient lenders won’t give money to a business that hasn’t been around for at least six months — and grants can be even more strict.

    But you still have options. You can consider angel investors, crowdfunding or even personal loans to carry you through the first few months.

    Bottom line

    Loans or grants, they all come down to your business and how quickly you need the money. Grants require investing time and planning, and they’re not guaranteed. Business loans aren’t guaranteed either, though there are more options available. There’s also a chance your business could qualify for both.

    Frequently asked questions

    Anna Serio

    Anna Serio is a staff writer untangling everything you need to know about personal loans, including student, car and business loans. She spent five years living in Beirut, where she was a news editor for The Daily Star and hung out with a lot of cats. She loves to eat, travel and save money.

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