Grants, Loans and Advances: Knowing the Difference and What is Right for You

Elizabeth DerivanAlternative Financing, Bank Loans, Capital Advance, Merchant Cash Advance, Small Business FinancingLeave a Comment

These days, there is a lot of financial help available for small businesses. As a business owner, you always want to have choices, but it can be confusing: how do you know which option is right for your business? Here is a simple breakdown of the financial help available and why a capital advance may be the best option for you.

Grants:

A grant is non-repayable financial assistance, typically provided by the government, to fulfill a specific purpose. The purpose can be anything from the type of business, to the product offered, to the use of the funds, etc. In other words: there are strings attached. If a grant ends up not being used for that purpose, you will end up repaying it.

Because grants are considered a gift for a specific purpose, there are a limited number of grants available. This makes them harder to obtain and the application process can take weeks or longer.

Loans:

A loan is money borrowed from a lender, which is repayable with interest. Loans are typically provided by financial institutions and can be given for a wide range of purposes. Therefore, they are much more accessible than a grant.

However, depending on the agreement, you can be locked into paying back a loan for years at a high interest rate. Additionally, if there is collateral involved (i.e., a secured loan) there are far more legal implications in the event you cannot repay. If there is no collateral (i.e., an unsecured loan), your interest rate may be even higher.

Advances:

An advance is upfront cash provided to a business, which is repayable with interest. A business receives an advance against its future sales, and the provider draws money from those sales as repayment. Payments are made daily or sometimes weekly.

An advance is ideal for:

  • Bridging short-term needs. It can be used for any business purpose.
  • Getting cash in your pocket quickly. Advances can be applied for online and funds deposited in your account in as little as 24 hours.
  • Fast repayment. An advance is typically repaid within one year or less.
  • Few legal formalities. This can offer flexibility in the event you have difficulty repaying.
  • Not accruing debt. While a loan is considered a debt on your credit report, a capital advance is not considered a debt by credit institutions.

What’s Best for You?

It’s important to assess your needs and financial situation before deciding which option is best for you. To learn more about a capital advance, submit a free application to Wellen today! We will walk you through the process to find the best solution for your business. Apply Now.

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