What is the difference between a grant and a loan?

Short answer

A grant is non-repayable money awarded for a specific purpose, usually with conditions on how it is spent. A loan must be repaid, typically with interest. Grants are harder to get because they are competitive and oversubscribed; loans are more widely accessible but create debt you must service.

The core difference is repayment. A grant is money you keep — awarded for a specific purpose, with conditions attached about how it is spent and what evidence you must provide. A loan is money you borrow and must pay back, typically with interest over an agreed term.

What that means in practice

Access: grants are competitive and oversubscribed — you are bidding against other applicants, and most schemes require a credible business plan and evidence of demand. Loans are generally easier to obtain if you meet the lender's criteria.
Credit history: grant funders assess the merit of your project and your capacity to deliver it, not your personal creditworthiness. Loan providers do run credit checks — the government-backed Start Up Loans scheme, for example, includes a personal creditworthiness assessment.
Strings attached: a grant usually restricts what the money can be spent on, and misusing it can lead to clawback. A loan is normally yours to deploy as you see fit, but the repayments start regardless of how the business performs.
Debt: a grant does not appear as a liability; a loan increases your financial obligations, and a Start Up Loan is a personal loan of up to £25,000 repaid over one to five years — you remain liable even if the business fails.

Blended schemes

Some government programmes combine the two. Innovate UK offers both grants and innovation loans, and some local authority schemes provide a blend of grant and repayable finance. Mixed grant-and-loan schemes may involve a credit check even though pure grants do not.

Which suits you depends on your position: if your project fits a live grant programme and you can wait out a competitive application process, free money is hard to beat. If you need finance quickly or your project does not match a funder's priorities, a loan — with a realistic repayment plan — is usually the more available route. Almost every option, either way, will expect a business plan covering your product, market, financial projections, and how the funding will be used.

Read the full guide: Startup Funding Support Options in the UKCovers eligibility, the process, deadlines, and next steps in depth.

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