Grant is good, loan is better
Grant is a money that is given to a person or business to pursue a cause whereby the money is not required to be paid back. Yes! it can be referred to as free money. However, it attracts a lot of applications. The reason for this is pretty simple: Who doesn’t want free money? For you to merit a grant, you must have been justified as distinct and serious as well as fulfilling all the outlined requirements.
When grant money is taken, there is less pressure on the entrepreneur. The risk accommodation of the business is high and these can impede thorough planning through different development stages.
In addition, discipline in procurement, prioritization of business needs and professional achievement of targets/milestones is hardly efficient.
Loan on the other hand will put you on your toes. You have to payback a certain amount per month with interest. To obtain a loan, you need not only be convinced on the viability of your business idea, and how to implement it; you must have assurance on how you will make money to pay back so you don’t default.
Negative effects of loan default
Some negative effects of loan default may cause the entrepreneur are listed below
- Negative credit score: This will make it almost impossible for you to obtain loans from other organisations in future
- Embarrassment: Caused from relationship officers chasing you up and down
- Loss of property: These includes collateral, business machinery and so on
- Slavery: You are at the mercy of the bank and other people that might be in a position to help you out of the predicament.
Apart from all these, is the factor that it might spell the end for your business. Even worse, your personal ego might be crushed and you may then find it very difficult to find motivation needed to get back on your feet. Frightening right? Absolutely!
Loan is better, Grant is best
According to Sir John Fortescue, 1927, A galant company quoted from the book “Leading Through Leaders: Driving Strategy, Execution and Change” by Jeremy Tozer;
“Unless the lesson of duty is first well learned, the lesson of discipline can be but imperfectly understood”
Also according to Jeremy, whenever we control our desire to do as we like, we do so for one or more reasons
- For our advantage
- Consideration for others
- Confidence in others
- Fear of punishment/repercussion
He went further to state that it is the relative weight that we give to each of these reasons that decides what sort of discipline we have which varies from self discipline to enforced discipline of fear. Obviously, in taking a loan, discipline is non-negotiable with all the reasons coming into account.
However, there are times when the entrepreneur is unfortunate due to circumstances beyond his control and he defaults a loan repayment. One can be sympathetic to the repercussions that may befall him. This situation is more apparent in start-ups and non experienced entrepreneurs. Some of such circumstances include
- Change in government policy
- Natural disaster
- Market resistance through unforeseen competition and so on.
In this light, a grant provides a soft landing. A loan on the other hand, will test your resilience – a vital skill necessary for business longevity and survival.
Grant is good for reduced pressure, allows for proof of concept, and promotes participation; however, a loan is better because it enforces discipline and encourages thorough planning and implementation. Furthermore, even though loan may be better, grant is best if the entrepreneur is self disciplined, sufficiently motivated, thorough and intelligent.