Difference Between Grant and Loan

Edited by Diffzy | Updated on: September 14, 2022

       

Difference Between Grant and Loan Difference Between Grant and Loan

Why read @ Diffzy

Our articles are well-researched

We make unbiased comparisons

Our content is free to access

We are a one-stop platform for finding differences and comparisons

We compare similar terms in both tabular forms as well as in points


Introduction

Financial aid that cannot be repaid is known as a grant. It is given by the government to people or organisations in order to serve a certain objective that is relevant to the welfare of the general population. A grant is not exactly the same as a loan, which is defined as a quantity of money received from a financial institution or bank by a person or an organisation for a certain purpose and that needs to be repaid together with interest after the time is through. A grant, unlike a loan, only needs to be repaid if it is not used for the intended purpose, it is prolonged, or an excess amount is extended. Read the article excerpt below for a detailed explanation of the distinctions between grants and loans.

Grant vs. Loan

To assist them in funding their enterprises, projects, education, and other initiatives, the government, financial institutions, and private entities provide financial aid to other governments, businesses, organisations, and individuals, such as students, researchers, or educators. These are distributed as loans and grants.

A grant is a sum of money granted by the government or a private organisation to support a good cause or an individual. It's financial assistance provided by one government to another or to a project that will help the general population. Students are also given access to it to aid in financing their studies. Although it is not required to be repaid, there are other criteria that must be met by students in order to be eligible. The government Pell Grant, which is based on financial need, and Teacher Education Assistance for College and Higher Education, which is not based on financial need but requires grantees to teach at a school for low-income students after graduation, are two examples of student grants.

Funds are highly competitive, and students who apply are screened based on gender, household income, and other criteria set by the organisation that awards the grants. In contrast to loans, where anyone can apply for any amount, grants have a set amount they can award and occasionally cannot cover the full cost of education.

A loan is a sum of money lent to a company or an individual by a financial organisation, like a bank or government or private agency, that must be repaid within a certain time frame and that carries interest. It is a typical transaction between banks and companies, but it is also made available to people, like students, who lack the resources to support their education. Even though it bears interest, this sort of loan has a lower interest rate than other loans.

especially if he applies for a loan that is backed by the federal government. Other institutions' student loans have less onerous criteria.

Difference Between Grant And Loan in Tabular Form

Table: Grant vs. Loan
Basic for comparison
Grant
Loan
Meaning
Government financial assistance given for a particular purpose is known as a grant.
Loans are financial aid given to borrowers by banks or other financial institutions that must be repaid over time with interest.
Repayment
Not necessary
Must be paid back within the time period stated or upon maturity.
Interest
No interest is charged.
Various types of interest have different interest rates.
Source
Limited
Many
Availability
Grants are not given to anyone or any organisation lightly.
In contrast, accessibility is simple.
Form
Money and goods
Money only
Purpose
allowed or specified purpose
any business or personal objective.
Refund
Grants must be repaid in the event that the requirements are not met.
Not in this case.

What is Grant?

Government grants, usually referred to as subsidies, duty drawbacks, or cash incentives, are defined as the monetary or non-monetary financial aid given by the government. Government grants are covered by Accounting Standard - 12. Regarding the utilisation of the grant and adherence to standards, there are some previous and future requirements that must be met.

A non-profit organisation, business, educational institution, or any other person may get a grant from the Central Government, the State Government, or any other government agency or body (i.e., Regional, National, or International). They receive funding only for permitted uses. Additionally, they are approved for those who have experienced a natural disaster or desire to launch their own business in order to become independent.

The fact that grants are an interest-free, non-repayable product is their strongest feature. For the purpose of receiving the grant, an application is submitted to the proper body.

A grant for a firm typically refers to the awarding of options on company stock to an employee in order to foster loyalty and reward excellent work performance. After the waiting period, the employee can exercise these stock options and purchase shares, frequently at a discount to the stock's current market value. On occasion, real stock shares are given and can be sold after a waiting period.

Employees are typically given stock option grants after they have been with the company for a specific amount of time. While the specifics of each firm's grant programme vary, in most cases individuals must remain employed by the company and are generally not allowed to exercise their granted options or sell their granted shares for a predetermined amount of time.

Furthermore, rights to the financial benefits typically accumulate over time according to a vesting schedule under grants. For instance, an employee continues to work for the company and gains a 50% stake in the award. At that moment, even if employment is terminated, the employee holds nonforfeitable rights to half of the prize.

What is Loan?

A loan is a contract under which a quantity of money is borrowed from the lender and will be paid back, with interest, in the future. It is a type of debt that must be repaid after a predetermined period of time. The interest rates on various loan kinds vary. The agreement precisely states when the loan must be repaid.

There are three methods to repay the loan: in a lump payment, at the end of the specified term, or upon demand. The loan can also be repaid in EMIs, which are equal monthly instalments spaced out over the time. Secured loans and unsecured loans are the two categories into which loans fall.

Any commercial bank, financial institution, or money lender can be used to get financing in the form of a loan. When requesting a loan for a specific project, the borrower must demonstrate the project's viability. Additionally, there are requirements that the borrower must meet before the lending institution can approve a loan for any other reason.

A loan is a type of debt that a person or other entity incurs. The lender advances the borrower a certain amount of money, typically on behalf of a business, financial institution, or government. The borrower accepts a specific set of terms in return, which may include any financial costs, interest, a repayment schedule, and other requirements. The lender may occasionally need collateral to protect the loan and guarantee repayment. Bonds and certificates of deposit can also be used as collateral for loans (CDs). Another option is to borrow money from a 401(k) plan.

Here is the loan application procedure. One applies for a loan from a bank, company, government, or other organisation when they need money. The borrower could be asked for specific information, such as the loan's purpose, their financial background, their Social Security Number (SSN), and other things. A person's debt-to-income (DTI) ratio is taken into consideration by the lender when determining whether a loan can be repaid. The lender decides whether to accept or reject the application based on the applicant's creditworthiness.If the loan application is rejected, the lender must state why. If the application is accepted, a contract outlining the terms of the arrangement is signed by both sides. The proceeds of the loan are advanced by the lender, and the borrower is then required to repay the full amount, along with any additional fees like interest.

Advantage of Grant

Any person in need of cash should take into account the numerous advantages that grants offer.

Grants are not repaid; they are non-repayable. The grant money is yours without any restrictions once you receive it. There is no need to stress over making regular payments or accumulating extra debt. Grants and loans vary fundamentally in that they require repayment, which also increases the value of grants over loans.

Grants are a risk-free approach to get the money you require. Your assets and credit standing are at risk if a loan is not paid back. Grants don't have to be repaid and simply help you or your company.

Advantage of Loan

There are certain benefits to asking for a loan as opposed to a grant.

Greater opportunities: Loans provide more opportunities when compared to grants. There are only a few grants available. On the other hand, loans may be given by people, private lenders, or banks. This increases your chances of getting the finance you require.

Additional financing options: Grants have a cap on the amount of funding they can offer. Most of the time, grant programmes are supported by government agencies, and each year there is a finite quantity of funds. You can borrow as much money as your credit and capacity to pay back the loan will allow.

Differences Between Grant and Loan in Points

The following points highlight the key distinctions between grants and loans:

  • Governmental financial assistance given to a grantee for a particular objective is known as a grant. Loans are used to refer to financial transactions where money is borrowed in the form of debt from banks or other financial institutions.
  • Grants are unearned funds that don't have to be repaid. On the other hand, loan payback is required, whether in a single lump sum payment, over time, or on demand.
  • While loans have an interest rate that varies from loan to loan, grants are inherently interest-free.
  • The government, which may consist of Central, State, or other government departments and authorities, generally awards grants. Loans, however, can be obtained from any commercial bank, financial institution, or money lender.
  • Grants are not given out lightly; the candidate must adhere to certain requirements on their past and future. As opposed to loans, where specific eligibility requirements must be met in order to be approved.
  • Loans are always financial; grants may be monetary or non-monetary.
  • Grants are only offered for specific purposes, whereas loans can be used for both personal and business purposes.
  • If specific requirements are not met, a government grant becomes refundable and is then considered as an unusual item under AS-5. Loans are only repaid over time; they are never refundable.
  • Grants are sums of money that the government gives to a recipient in order to accomplish a specific goal. When money is obtained from a creditor or another banking organisation in the form of credit, it is referred to as a loan.
  • Grants are unearned sums of money that don't have to be repaid. In contrast, loan repayment is necessary, whether it be in the form of a single payment, a series of payments, or upon demand.
  • There is no interest associated to grants. In contrast, the lending rate for loans varies amongst institutions.
  • Grants have more requirements, and each application is carefully considered, whereas loans have fewer restrictions.
  • A certain amount of money is given to a recipient of a grant. But when they get a loan, they can get any amount of money.
  • Grants can be in the form of cash or non-cash, whereas loans are only available in cash.

Similarities Between Grant and Loan

Both grants and loans have some similarities, such as the fact that they are long-term sources of funding, that restrictions must be met, and that the application procedure takes a few days.

Conclusion

Both Grants and Loan are long-term forms of financing. Specific conditions should be met for both of them. However, grants do not need any kind of repayment and do not carry any rate of interest with them. There are only few conditions that should be satisfied.

Conversely, obtaining a loan is generally simple and just has a few conditions on the part of the applicant.

Each person has unique needs and objectives. Grants and loans can, however, frequently be combined to effectively fund research and development. Although they are not entirely compatible, you must become familiar with the loans and grants that are available in your nation.

References

  • https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2126288
  • https://muse.jhu.edu/article/720771/summary

Category


Cite this article

Use the citation below to add this article to your bibliography:


Styles:

×

MLA Style Citation


"Difference Between Grant and Loan." Diffzy.com, 2022. Sun. 27 Nov. 2022. <https://www.diffzy.com/article/difference-between-grant-and-loan-646>.



Edited by
Diffzy


Share this article