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Smart Money Moves: Loans vs. Grants – Finding Your Path to Financial Success

Starting and growing a small business in Canada can be a rewarding venture, but it often requires a significant amount of capital. Small business owners often seek financial assistance to cover startup costs, expand operations, or weather unexpected challenges. Securing the right financial support is like choosing the perfect tool for a job – you want to ensure it’s the right fit.

In business funding, there are several options; however, two prominent options often come into play: loans and grants. Each has unique advantages and considerations and making the right choice can significantly impact your entrepreneurial journey. Let’s dive into this journey of smart money moves and help you understand the critical differences between loans and grants and how to recognize which one is the right fit for your business.

The Loan Route: Building with Borrowed Capital

When you opt for a loan, you’re borrowing money you’ll need to repay with interest. These loans typically require collateral, a strong credit history, and a well-developed business plan and come in different forms, such as term loans, lines of credit, and equipment loans.

There are different types of loans, i.e., traditional bank loans, government loans instituted in programs like the Black Entrepreneurship Loan Fund (BELF) and online lenders, which many Fintech organizations have established alternative financing options like peer-to-peer loans and merchant cash advances.

Whichever type of loan you secure can be an excellent choice when you have a clear plan for using the funds, such as expanding your operations, investing in equipment, or launching a new product.

One key characteristic of loans is that they must be repaid with interest over a specified period. The repayment terms can vary widely depending on the type of loan and the lender.

The Grant Route: Money with No Strings Attached

Conversely, grants are funds provided by government agencies, non-profit organizations, or private entities that do not require repayment. You can consider grants as ‘gifts with no strings attached.’ However, grants are awarded based on specific criteria and objectives.

There are also different types of grants, but the most common ones for businesses are hiring, training and market expansion grants.

Grants are typically more selective and have specific eligibility criteria and application requirements. Small businesses often need to demonstrate how their project or business aligns with the grant’s objectives, and the competition for grants can be fierce. Grants do not require repayment, making them an attractive option for businesses that meet the criteria. They can be a fantastic resource for businesses focused on community development, innovation, or research.

Choosing Your Path

Now that we’ve explored the basics of loans and grants let’s discuss some factors to consider when deciding which option is right for your small business.

1.      Financial Situation: If your business needs immediate capital or you have a history of strong financial performance, a loan might be a suitable choice because grants do not last forever and fluctuate frequently; especially if many applicants are applying for the same grant, it might disappear in a few days. However, if your business aligns with specific grant programs, pursuing a grant can provide non-repayable funding if you apply for the grant long before you need it, as some grant processes might take as long as six months.

2.      Business Plan: A well-thought-out business plan is crucial when applying for loans, as lenders want to ensure your business can repay the borrowed funds. Grants often require a compelling project proposal that aligns with the grant’s objectives. The process to apply for a grant includes the preparation, submission, adjudication, approval, post-approval, and post-project.

3.      Fund Use: With a loan, the funds are deposited into your account and can be used for any expenditure the business requires. Most grant programs follow a claim-back process where the business incurs the cost, and the grant-issuing organization reimburses the expense after the claims have been verified. Market expansion grants do not cover operational expenses such as equipment, warehousing, and rent; you can use loans for these expenditures.

4.      Application Process: Be prepared for a potentially lengthy and competitive application process when applying for grants. Loans may have quicker approval times but require strong credit and collateral.

5.      Seek Expert Advice: Don’t hesitate to consult with financial advisors or mentors. They can offer valuable insights and help you make an informed decision.

Loans and grants are both valuable sources of financing for small businesses in Canada. The choice between the two depends on your business’s financial situation, goals, and willingness to take on debt. Carefully assess your options, explore available programs, and consider seeking professional advice to make the best decision for your small business. A combination of loans and grants may also be a viable strategy to meet your financial needs and support your business’s growth.

Your success story is waiting to be written. Make those smart money moves and secure your path to financial success!

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Rob G.C. Sobey

Board Member

Rob G.C. Sobey is a corporate director. Mr. Sobey was the President & Chief Executive Officer of Lawton’s Drug Stores Limited from 2006 until his retirement in 2014 after 25 years with Sobeys. He serves as a director of SeaFort Capital and the Institute of Corporate Directors. Mr. Sobey is Chair of the Sobey Art Foundation, a member of the Queen’s Smith School of Business Advisory Board and serves on several foundation and not-for-profit boards. For his work as an Honorary Colonel of the Canadian Army, Mr. Sobey received a Queen Elizabeth II Diamond Jubilee Medal. He holds an undergraduate from Queen’s University, a Master of Business Administration from Babson College, and the ICD.D designation.

Denburk Reid

Board Member

Denburk Reid is the founder of Montreal Community Care Foundation (MCCF). Its mission is to empower youth by developing their leadership skills by using programs, workshops, and events, and by building bridges between communities. As the founder of MCCF, he beliefs that the youth hold the key to Montreal’s future and over the past eight (8) years, its programs have helped hundreds of Montreal youth stay on track, perform community services as well as set and achieve academic and life goals. The organization seeks to empower youth to become engaged citizens and leaders in their homes, schools, and communities. For the past five (5) years, MCCF celebrates and promotes community engagement across Montreal through the Montreal Community Cares Awards.

Along with his role as the founder of MCCF, Mr. Reid is the Founder of Red Rush Basketball & Red Rush Basketball Leadership. He has a passion for empowering youth and meeting them where they are lends to a successful outcome.

Abdikhier Ahmed​

Board Member

Mr. Ahmed is a recognized community leader in the non-profit sector with specializations in immigration and refugee resettlement, poverty reduction, and community empowerment. A dynamic, highly motivated individual with extensive experience in program development and delivery, providing strategic visioning and leadership. Over 10 years’ experience managing programs for non-profit organizations and working with communities and people from diverse socio-economic and cultural backgrounds both locally as well as internationally. Fluently multi-lingual: speaks and writes English, Swahili, Somali and basic Arabic. This experience help guide Mr. Ahmed when he was in the role of Director of Policy at the Office of Canada’s Minister of Families, Children and Social Development.

Mr. Ahmed is currently the Executive Director of Aurora Family Therapy Centre. Aurora is a progressive, non-profit family therapy centre that offers family therapy on a sliding scale; sees clients through services funded by Manitoba Department of Families and Department of Justice; provides community building groups for Newcomers to Canada; hosts a Psycho-Social Settlement Needs Assessment program for incoming refugees; provides summer youth programming for many newcomer communities; supports its own staff and other agencies through vicarious trauma and resilience programming; develops supportive relationships with community partners, and engages in advocacy for accessible community-based therapy services for all. Aurora is in the process of becoming a Centre of Excellence in providing cross cultural therapy from a systemic lens with a special focus on psychological trauma & recovery and community development.