Loans and grants are two options available for small business owners to attain funds for their ventures. Loans can be obtained from a financial institution such as a bank or through the U.S. Small Business Administration (SBA). Loans have requirements, such as interest rates and payback periods, set forth by the lender, and the funds borrowed must be repaid according to the conditions of the agreement. Lenders also have terms that borrowers must meet, such as verification of capital and a high credit rating, to acquire loans. These ensure the lender that the borrower is eligible for the loan and capable of paying back the debt.

Unlike loans, grants do not have to be repaid; however, they also have terms... Loans and grants are two options available for small business owners to attain funds for their ventures. Loans can be obtained from a financial institution such as a bank or through the U.S. Small Business Administration (SBA). Loans have requirements, such as interest rates and payback periods, set forth by the lender, and the funds borrowed must be repaid according to the conditions of the agreement. Lenders also have terms that borrowers must meet, such as verification of capital and a high credit rating, to acquire loans. These ensure the lender that the borrower is eligible for the loan and capable of paying back the debt.

Unlike loans, grants do not have to be repaid; however, they also have terms and conditions that must be met to secure funding. Grants are available from sources such as federal, state, and local governments; corporations; and foundations. Grants have very specific guidelines and requirements. They are not exactly free money and sometimes require the receiver to match funds bestowed by the grant. If interested in acquiring a grant, a business owner should develop a specific proposal to request funds and state clear intentions for using the money. In many cases, federal grants cannot be used to start a business and only can be obtained by existing businesses. Some exceptions do exist, however, especially for grants offered by state and local governments and other entities such as private foundations.

OBTAINING LOANS AND GRANTS

Existing and start-up business owners can apply for commercial loans. To apply for a loan, business owners need their credit report and personal financial statements as well as any financial statements for their business, including records for accounts payable and accounts receivable. They also need to submit a letter documenting their experience, the nature of their business, the amount being requested and its intended use, and a plan for paying back the loan. In addition, they need to submit a detailed business profile. SBA loans require business owners to complete additional forms.

Grants sometimes can be more challenging to acquire than loans and have many restrictions and requirements. In some cases, existing businesses may apply for grants, while start-up companies are excluded. Nonprofit organizations typically qualify for most grants, if they meet certain criteria. For-profit companies in certain industriessuch as retail, service, or manufacturingmay be excluded from grant eligibility. Education-based for-profit businesses, however, may be eligible for certain grants. In addition, companies must not exceed a certain number of employees or guidelines for total revenue earned. Most small business grants are available online through the SBA. To be considered for a grant, business owners must fill out applications and submit paperwork similar to that which is required for loans.