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When it comes to financing your goals—whether you’re starting a business, developing your education or making home improvements—you will commonly come across two critical options: grants and loans.

If you’re someone who needs some funds to achieve their goals, it is critical to understand the differences between the two funding sources. This will help you make a more informed decision.

Below, we’ll dive into the details of grants and loans, exploring their unique characteristics, benefits and some examples of each within Canada.

Grant Vs Loan: What’s The Difference

While both a grant and a loan can provide you with the funds you need, they are two very different options, with pros and cons.

What Is A Grant?

A grant is a type of financial assistance that is awarded to an individual, group or company by governments, foundations or other organizations to support specific projects or initiatives. Grants are typically awarded based on need, merit and/or project proposal. As such, to be eligible for a grant, you need to ensure your needs and goals align with the grant objective.

Grants do not require repayment making them an attractive option for students and businesses. 

What Is A Loan?

A loan is slightly more nuanced than a grant, but people generally have more experience with loans in their day-to-day lives. A loan is borrowed money that must be repaid at some future date, and with additional interest.

The most common loans are for large purchases that an individual may not have the funds for today, but they can pay it off over time. Think mortgages for purchasing a home or an auto loan for purchasing a car.

Loans are generally more widely available than grants and less restrictive. There are hundreds of lenders that offer loans for any reason to Canadians with varying financial backgrounds.

Learn more: Loans in Canada

Grant Vs Loan: Benefits And Drawbacks

Whether you should rely on a grant, loan or both, it’s important to understand the benefits and drawbacks of each option. 

Grant: Benefits

At first glance, the appeal of a grant seems obvious—it’s essentially free money! However, there’s more to it. 

  • No repayments. Grants do not need to be repaid, which means recipients can use the funds without the burden of debt. 
  • Credibility. Receiving a grant, particularly from a well-known establishment, can help you increase your credibility as an individual or business. It can show future lenders or partners that you or your idea has been vetted and was deemed worthy of funding.

Grant: Drawbacks

While grants offer significant advantages, they are not without their challenges.

  • Difficult applications. Grants typically have a rigorous application process and strict eligibility criteria. 
  • Fund restrictions. The funds you receive from a grant may have certain conditions on how it’s used. For example, if you apply for a student grant, the funds may only be used on your tuition and not your living expenses as a student.  
  • Grant limits. Moreover, there are limits on the number of people who can receive the grant and how much is offered. This makes them highly competitive and success is not guaranteed. 
  • Funding time. Another factor to consider is your timeline. Even if you are granted funding, the funds may not be distributed immediately or in full, which could create timing or cash flow challenges.

Loan: Benefits

If given the option to receive either a grant or a loan of equivalent amounts, a grant seems like a no-brainer given that you do not need to pay it back.

However, there are many benefits to a loan. 

  • Higher funding. A loan gives you the ability to borrow a larger amount and for a wider range of purposes.
  • Easier eligibility. Unlike grants, loans are generally easier to qualify for. Requirements are based on your finances and credit health, but they can vary by lender. 
  • Fast funding. With a loan, you can get the funds you need the same day you apply depending on the lender. This is particularly advantageous in times of emergencies.
  • Affordable payments. With a loan, you can spread out your payments over a long period of time to keep the payments affordable.
  • Build credit. Borrowing money and consistently paying it back can help build your credit, which can make it easier to receive future loans that come with better terms.

Loan: Drawbacks

While there are many benefits of a loan, there are drawbacks to consider, including: 

  • Cost. The biggest drawback of a loan vs a grant is the cost and repayment. With a loan, you not only have to repay the amount you borrow, but you must repay it with interest. 
  • Missed payment consequences. If a borrower cannot repay their loan, there can be dire financial consequences—including damage to credit scores (hampering the ability to get future loans) and even possible legal action and seizing of assets.

More information: What Happens When I Can’t Make My Loan Payments?

Where Can You Get A Grant? 

There are hundreds of grants available in various fields offered by government agencies, non-profit organizations and other private companies. Here are a few resources you can use to find a grant in Canada. 

DescriptionWebsite
Canada Business NetworkGovernment platform to find benefits and grants for businesses.Learn More
Canada Foundation for Innovation (CFI)Funding for research infrastructure in Canada.Learn More
The Trillium FoundationGrants for nonprofit organizations in Ontario for various sectors.Learn More
Student Grants and ScholarshipsA database of Canadian student grants from the government and private sectors.Learn More

Here are some of the most popular grant programs in Canada: 

Business Grants

Business grants can be beneficial for governments to support because they can help facilitate the start-up of new businesses that ultimately employ workers, create products and services for customers and stimulate economic growth.

  • Starter Company Plus: Aimed at Ontario small businesses, this program provides grants and assistance to help entrepreneurs launch and expand their ventures. You can get a grant of up to $5,000.
  • TACC New Relationship Trust (NRT) Community Equity Match Grant: This grant supports First Nations communities in leveraging TACC business loans, helping them to build sustainable businesses.

Here’s a comprehensive guide on Government Financing For Businesses In Canada

Student Grants

Similar to business loans, the government invests in such grants because it leads to a more educated population, which generally correlates with greater economic and social well-being of the country.

In Canada, the government offers a popular grant program called The Canada Student Grant. Eligible full-time students can receive up to $4,200 per year and up to $2,520 per year for part-time students. 

For more details, please check out the Canada Student Aid program.

Why Does The Government And Other Organizations Offer Grants?
Oftentimes, grants exist to promote some public or social good, innovation, education and community development. They are generally funded by either a government agency, non-profit organization or foundation that is aiming to drive a positive change in society. Some of the reasons include:
1. Supporting Education. Many grants help students pursue higher education, subsidizing some of the cost and making it more accessible. This ultimately benefits society by removing financial barriers so that more people can get a higher education.
2. Encouraging Innovation. Grants may fund research and development projects helping to bring forth innovative ideas and technology to reality.
3. Tackling Social Issues. Organizations may receive grants in order to address specific social challenges such as poverty, health disparities or environmental issues.
4. Promoting Community Development. Grants can also support local communities with infrastructure or cultural programs.
5. Stimulating Economic Growth. Supporting businesses and entrepreneurs with grants can help create jobs and stimulate the overall economy.

Where Can You Get A Loan?

You can get a loan from bank, credit unions and other financial institutions in Canada. However, your options can vary depending on the type of loan you need and your current financial health. For example, if you’re looking for a mortgage and you have bad credit, you’ll usually have to work with a private mortgage lender instead of a bank. 

Alternative lenders generally have more flexible lender requirements making it easier to qualify for a loan. That said, these lenders often charge higher interest rates for the added risk they take.

Learn more: Best personal loans in Canada

Types Of Loans You Can Get

Loans come in many different shapes and sizes. Unlike a grant that is used for a very specific purpose (e.g., starting a business or pursuing education), a loan can be used for a broader range of reasons. Here are some common types of loans: 

  • Personal Loan: A personal loan is a basic installment loan that can be used for almost any reason. These loans are usually unsecured, but you can offer collateral to help secure better terms and increase your odds of approval. 
  • Home Equity Loan: if you’re a homeowner with equity in your home, you can tap into it to get a home equity loan or a home equity line of credit. These loans are secured against your home, making them a low-cost but risky option.
  • Business Loans: A business loan can be used to finance business operations, expansions or startup costs. This can be in the form of a term loan (with a fixed payback) or a line of credit which allows the business to draw from up to a certain limit.
  • Student Loans: The government of Canada offers specialized loans for students. These loans are generally the cheapest option and have very flexible repayment periods. If you’re ineligible for a government student loan, you can opt for a student loan from the bank or a private lender.

Bottom Line

Understanding the differences between grants and loans can greatly influence your financial options and strategies to navigate financing major decisions.

Grants provide free money, but it requires a lot of time, research and work to apply for one. Moreover, approval is not guaranteed. Loans can be more accessible, flexible, and provide larger amounts, but are much more costly.

Grants vs Loans FAQs

Do you have to pay back grants in Canada?
No, grants do not need to be repaid as long as you meet the specific conditions set forth when awarded.
Are grants guaranteed?
No, grants are not guaranteed. Applicants must meet specific eligibility requirements and go through a competitive application. 
How long does it take to receive grant funding?
The timeline can vary significantly depending on the grant program and application process. 
Is OSAP a grant or a loan?
OSAP (Ontario Student Assistance Program) provides both grants and loans to help students finance their education.
What happens if I can’t repay a loan?
If you’re unable to make your loan payments, you’ll usually be charged interest and late fees. Moreover, your lender will report your payments as missed to the credit bureaus which can negatively impact your credit scores. If you completely default on your loan, your lender may take legal action against you or sell your debt to a collection agency.
Jun Ho avatar on Loans Canada
Jun Ho

Jun Ho is a finance professional from Vancouver, BC and a Bachelors in Business Administration from Simon Fraser University. His writing work has been featured in many publications, including the NYSE, CBOE, TheStreet, Horizons ETF, TrackInsight ETF, Financial Edge, and Corporate Finance Institute.

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