Business Loans and Grants

When you wish to start a business but you lack financial back up or you want to expand your business but again finance is the problem then you can consider taking help from financial organizations. Financial organizations can either be government or private. These organizations would give out loans that supposed to be paid back within a specified period of time with the interest rate that is charged on these loans.

Arranging for finance for a business is one of the most crucial aspects. For starting a business or for running it successfully you would need finance. It is hard to find finance for a business. Most of the firms would ask for collateral to be offered in order to obtain a loan but in cases where the loan has to be taken for a start up then the business entrepreneur might not be in a position to give a collateral for the loan.

Hence for helping out people with their business ventures the government offers loans and grants to people who want to establish their business. Let us analyze both these one by one.

Grants: the local government or an organization usually gives out Grants to a business for a particular project. With this the business would receive the specific funds to finance the project that would help the business grow. The best part about taking a grant is that you are not required to pay it back. But the result of the project for which the grant has been taken should be seen. There are only a limited number of grants that are given out. These grants are made available to the company for helping them out by financing their needs for a particular project. However the money that is given out to the businesses

cannot be used for financing any other financial transaction and it cannot be used for any other purpose other than for which it is given out.

In most of the cases the organizations that give out grants do not fund the entire projects. Only 50% of the cost is granted to the business for funding a particular project. This is due to the fact that the funding bodies want to ensure themselves that they are not financing a risky project.

Loans: At times it becomes difficult for a business to provide security for the loans to the private lending institutions. For this reason the government acts as a guarantor for business that qualifies for business loans funded by the government. The government usually guarantees 75% of the loan amount that the entrepreneur takes if he is unable to pay back the loan amount to the lending firm on time. For applying for these loans you are supposed to have applied for a loan with a lender who is authorized to provide the loan. However the decision of giving the money to you ultimately depends on the lender and not the government. It is just that the security that you get from the government would help you in getting the loan. When taking a government guaranteed loan you are supposed to pay 2% of the remaining loan every year to the business sector of the government.

These types of loans are made available to businesses that do not need much financial help but when needed are unable to provide security for the loan. Because of the lack of security the government is ready to fund their financial needs. This would however mean that the repayments for the loan would be more. Loans are not meant for funding any particular project but can be used for any financial need of the business.

It all depends on you needs which type of finance you want to apply for. In case you need finance for expanding you business or for any other capital funding of the business then you should go in for loan guarantees. But in case you are looking for finances for a particular project then you can opt for grants.

Obtaining capital at acceptable rates is as important for a business as getting business or customers. There are many businesses that suffer from some sort of obstruction at some point of the time just because they dont have sufficient funds. Funds are the backbone of a business and unless there is proper funding having a good business idea or plan does not work out. Businesses usually require major finances at two stages one for setting up the business and the other when working capital is required when the business is in operation.

There are times when the business finance requirement is underestimated by the borrower because the amount required is realized when the borrower is midway through it. It can also be possible that because of sudden hike in the prices of the product or service that is required for the business the borrower would require more finance that the amount predicted.

Remember that getting a business loan or a grant is not an easy task. You have to prove that the business would survive all the down falls and would be able to prove to be beneficial in the future. The lender should be convinced that the investment in the business would prove to be fruitful. The same hold true for grants. Before obtaining grants you have to make sure that you would be able to prove your capability. So before you apply for a grant or a business loan you should be prepared in mind with the purpose and the need of the loan or the grant.