Business loan or government grant? Our honest verdict

A government grant is money awarded to a business for a specific project that fits a program’s goals, usually through a competitive application, and generally not repaid. A business loan is money borrowed for business purposes and repaid with interest and fees, approved on your trading and security. The business loan vs grant question is less “which is better?” than “which can actually fund this, in time?”

How is a grant different from a loan?

A grant is won; a loan is qualified for. To win a grant, your project has to fit the priorities of a program that is open when you need it, and your application has to beat others. Business.gov.au’s grant readiness guide is blunt: not all applications will be successful, strong applications take time and effort, and you’ll usually need to report on how the money was used.

A loan depends on your business: trading history, bank statements, credit and security. It can be used for most legitimate business purposes and arrives on a timeline you can plan around. The catch is obvious: you repay it.

Side by side: grant vs loan

Test	Government grant	Business loan
Repaid?	Generally no	Yes, with interest and fees
Who decides	A program’s assessors, against criteria	A lender, against your trading and security
When available	Only while a program or round is open	Whenever you apply
What it can fund	The approved project only	Most business purposes
Co-funding	Often required	Not applicable
Tax	Most are assessable income (ATO)	Not income; interest generally deductible for business use
Reporting	Usually progress and acquittal reports	Repayments, plus any loan reporting terms
Certainty	Competitive; may be unsuccessful	Depends on fitting the lender’s criteria

Our verdict

The loan wins on reliability. For most small businesses, most of the time, a loan is the funding you can actually plan around. Our verdict on the best small business loans sets out the options by profile.

The grant wins when the fit is genuine. If you are developing a new product, entering export markets or working in a priority industry, and an open program matches, a grant can be worth the effort. It may not need repaying, but read the conditions closely.

What do grants really involve?

More than most owners expect. Take the Industry Growth Program as one example of how national programs work. Its grants range from $50,000 to $250,000 for early-stage commercialisation and from $100,000 to $5,000,000 for commercialisation and growth. They require matched funding, are assessed by an independent committee, and are limited to innovative projects in specified priority areas. At the time of writing, the program was paused to new applications. Programs open, close and change.

Typical features to plan for:

• Eligibility rules on turnover, structure, industry and location.
• Co-contribution: many programs fund only part of the project.
• Timing: rounds open and close, and assessment takes time.
• Reporting: progress and acquittal reports on how the money was spent.
• Tax: the ATO says most grants and payments are assessable income.

Choose a business loan if…

• You need the money by a particular date.
• The purpose is ordinary: stock, equipment, staff, premises, tax, or buying a business.
• No open program matches your project.
• You need to co-fund a grant project or cover costs until grant payments arrive.

Choose to pursue a grant if…

• Your project clearly matches an open program’s priorities.
• You can fund your share and wait for the outcome.
• You have time to write a strong application and report afterwards.
• The project would still go ahead, perhaps more slowly, if you missed out.

Need funding while a grant is uncertain? Talk to a specialist about bridging the gap.

Illustrative example: $200,000 for new equipment

Illustrative only. Round numbers, no real business or program.

A food manufacturer wants $200,000 of new processing equipment to launch a product line.

• Grant route: a program for manufacturing upgrades opens next quarter. If successful, it might contribute $100,000 on a matched basis, so the business still needs its own $100,000. The decision is months away and not guaranteed.
• Loan route: equipment finance or a business loan funds the full $200,000 now, so the line can launch before the busy season.
• Combined route: the business applies for the grant and arranges finance for its share, timing the purchase to fit the grant’s rules about when costs can be incurred.

The owner’s verdict: apply for the grant, but don’t build the plan on it. For more on funding machinery, see the best way to fund equipment.

How do you find a grant that fits?

Start with the official finder, not a consultant’s list. The business.gov.au grants and programs finder is a free guided search covering programs from across government, and new programs are added regularly. Then work through these steps:

1. Filter honestly. Narrow by location, industry and purpose, and drop anything your project doesn’t clearly match.
2. Read the guidelines in full. Eligibility, priorities, co-contribution, eligible costs and when costs can be incurred are all in there.
3. Check the dates. Note when the round opens and closes, and how long assessment is expected to take.
4. Budget your share. Work out how much the business must contribute and where that money will come from.
5. Plan for a no. Decide what happens to the project if the application is unsuccessful.

If step four or five points to finance, sort that out early. A conditional finance plan makes a grant application stronger, not weaker.

Be wary of anyone who charges a large upfront fee to find or write grants for you. The official finder and program guidelines are free, and most program pages list a contact line for eligibility questions. Paid help can be worthwhile for complex applications, but agree the fee and what it covers before any work starts.

What about government-backed loans?

They sit between a grant and a commercial loan. Export Finance Australia’s Small Business Export Loan offers $20,000 to $350,000 to direct exporters with an ACN, turnover above $250,000 and at least two years of trading, to help fulfil export contracts and grow overseas sales. Indigenous Business Australia also offers business finance. They’re loans, so they need repaying, but they may fund what other lenders won’t.

And equity?

If neither a grant nor a loan fits, selling a share of the business is the third path. Our debt vs equity verdict weighs it up. For new ventures, our verdict on the best business loans for startups covers how younger businesses can borrow, and farmers should also read the best farm and agribusiness loans.

For more funding match-ups, including equity, overdrafts and cash advances, browse our head-to-head verdicts.

Ready for funding you can plan around?

A loan won’t make you wait for a funding round. Check whether you qualify by telling us what you need, what it’s for and when you need it, including whether a grant application is in progress.

Your enquiry doesn’t involve a credit check at the start. A single specialist looks after you, rather than your details being shared with a crowd of lenders, and they’ll call to understand the project. Please describe the timing and any grant conditions accurately so the finance lines up with them.