Debitoor's accounting dictionary

Grant - What is a grant?

A grant is a sum of money given to an individual, business, or organization that does not need to be repaid.

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Grants are often given by governments, foundations, trusts, or corporations to a recipient, which is often an individual, business, educational facility, or non-profit organisation. It is essentially a monetary gift.

Grants need to be applied for and are generally competitive. They also usually require that you do something with the money and comply with its rules, whether that be complete an educational course, forward your business, or complete a research project.

Potential grant recipients will either have to submit an application or create a grant proposal. A grant proposal is a document submitted to the grant-giver outlining the specific task or project that you will use the grant money for.

If you are unable to complete the task or project, or at any stage of the grant timeline you become ineligible, you may need to repay the grant. For example, if you receive a grant to complete a course, but later drop out of the course, you are no longer eligible and may be required to repay the money.

The 4 types of grants

There are 4 main categories of grants, competitive, formula, continuation, and pass-through.

Competitive funding:

Competitive funding, also known as discretionary funding, is based on potential recipients submitting grant proposals, and reviewers making a selection based on the proposal. Recipients are not pre-determined, and the grant is issued based on the merits of the application. Competitive funding is often used for research grants.

Formula funding:

Formula funding is based on specific pre-determined criteria. As long as the criteria of the grant are met, the recipient will receive the money. Formula funding is often used for government grants to ensure that potential businesses or applicants are eligible.

Continuation funding:

Continuation funding offers the option of renewing your grant for the following year or grant period. Sometimes, this type of grant is only issued to recipients already receiving the grant, however, other times it is offered to new applicants. This type of grant is often issued for multi-year research or educational projects.

Pass-through funding:

Pass-through funding is a type of grant that is issued from an organisation to the recipient via an intermediary. An example of this would be the government issuing money to individual states or counties to then distribute the money as grants within their community.

Examples of a grant

Educational facilities, like Universities, often have grants, scholarships, and loans available to provide financial support to students. University grants are given to students based on criteria such as family income. These grants are usually given to the University from the government which are then passed on to the student who meets the criteria.

Governments also offer grants to businesses to fund ideas and boost the economy. There are several different types of government grants, but they are usually for research, startups, or economic assistance. For instance, the UK government issued grants to self-employed persons and small businesses to help them recover from financial loss due to the coronavirus pandemic.

Certain foundations award grants to individuals to complete a task. Some examples are grants for young people volunteering abroad, grants for scientific research, grants for individuals in performing arts, etc.

Grant vs. loan

The main difference between grants and loans is that loans need to be repaid, whereas grants do not.

A grant is “free money” given to a recipient that meets certain criteria or uses the money to complete a specific task.

A loan, however, is a sum of money that a recipient borrows from an individual or organization in exchange for future repayment plus interest.

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