The great thing about small business grants is that if you can fund your company with them, there is almost no risk to your personal finances if the company goes under. Small business grants, however, are extremely hard to obtain. Even if you do get one, it is not always free money, because grants tend to carry stipulations that require the entrepreneur to invest in his company.
You do not have to repay small business grants. The purpose of small business grants is to fund new projects without the owner having to dip into savings or take out loans. Thus, grants are usually the desire of any entrepreneur and sometimes used to scam people out of money. Grants from the government are extremely hard to get and some fraudsters claim they can fast-track someone to a grant for a fee.
Some organizations and governments that award grants require the recipient to provide matching funds. Matching funds are capital that the owner finds on his own that equals the grant award and goes into the business. This might mean that the entrepreneur has to take out loans anyway to meet the provisions of the grant.
The type of business financing that requires repayment is a small business loan. Since grants are difficult to come by, most entrepreneurs opt for a business loan. The owner repays a business loan with interest. If the company defaults on a business loan, its credit rating will suffer and the creditor might go after the business's assets and the owner's assets.
Should you find a grant that does not require matching funds, you will probably still need a loan or other source of funding, according to Andrea Zeller of Mission Community Services. Most small business grants are only for a few thousand dollars. While you might be able to start a business with a few thousand dollars, you will likely eventually need a line of credit or loan to expand or to cover gaps between sales and receiving payment.