SBA 7(a) Loans up to $500k Now Available

Business Insights

Grants vs. Loans: Small Business Financing

Businesswoman focused on her laptop, researching grants vs. loans.

Securing financing is crucial for the success of emerging small businesses. Small business owners have various funding options, including personal savings, loans, grants, crowdfunding, and more. Let’s narrow our focus and talk about grants vs. loans in this article. In 2022, 47% of startups failed due to a lack of financing or investors. This emphasizes the importance of securing funding for your business plan from the beginning.

If you’re seeking external funding for your small business, you might start by searching for “small business grants” and “small business loans.” While grants may seem like the ideal financing option, it’s important to carefully consider all factors when securing funding. Let’s dive in and compare grants vs. loans.

Small Business Grants

Pros: 
  • – No repayment period 
  • – No interest
  • – Support and recognition
  • – Financial relief
Cons:
  • – Highly competitive 
  • – Specific use restrictions 
  • – Time-consuming application process
  • – Limited availability

Small business grants provide valuable financial relief without the burden of repayment or interest. They can also offer support and recognition that can boost a business’s credibility. However, securing a grant can be difficult because of high competition and a detailed, time-consuming application process.

Additionally, grants often come with restrictions on how the funds can be used and their availability is limited, making them a less accessible option for some businesses.

Small Business Loans

Pros: 
  • – Flexible use
  • – Larger amounts
  • – Builds credit
  • – Wide availability
Cons:
  • – Repayment required
  • – Interest rates
  • – Debt obligations
  • – Collateral

When comparing grants vs. loans, small business loans offer access to a larger amount of funding, help build business credit, and are easier to obtain. Securing a small business loan can be considered “good debt” in many cases, as it can increase your earning potential and help build your credit score. However, loans come with the requirement of repayment with interest that can add to the financial burden.

Small business loans with the most competitive interest rates are SBA loans. SBA loans are small business loans supported by the Small Business Administration. These loans are government backed, low interest, long-term loans made for small businesses. Additionally, an SBA 7(a) loan can be used for various purposes including business acquisition, short and long-term working capital, debt refinancing, equipment, and purchasing furniture, fixtures, and supplies. 

How to get an SBA 7(a) Loan

You can take a few avenues to secure an SBA 7(a) loan; you can read more about who provides small business loans here. However, you must connect with a loan service provider and apply for a loan.

SBA loans have the highest approval rate at smaller institutions. Small business owners should consider working with smaller entities, especially those who do not have strong banking relationships.  

Connecting with smaller financial institutions can offer unique benefits and personalized services. It may also improve the chances of loan approval.

For example, you can partner with NEWITY as your loan service provider. NEWITY has streamlined their loan application so that you can see how much you are eligible to receive in less than 10 minutes. Start by creating an account and filling out the application.

See how much you are eligible to receive

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To qualify for an SBA 7(a) small business loan, your business must be:

  1. U.S.-based and operated
  2. Owner supported / owner funded
  3. Eligible per the SBA’s requirements

Your loan amount will determined by the business’ average annual revenue, FICO score, and years in business