Difference Between Grant and Loan: 9 Essential Points

Understand the difference between grant and loan in Nigeria. Learn key distinctions to make informed financial decisions for your business or education in 2025

In Nigeria today, how much funds are accessible to you will definitely go a long way in deciding how successful or unsuccessful not just your business will be but how much success you’ll achieve in your education and personal growth.

In a nutshell, if you are an entrepreneur who’s looking for money to push your business to a higher level or a student who wants support for your education, there are times when you are faced with the confusion of going for a loan or grant.

I’ve been here in the past, and I wasn’t well informed, so I made the wrong decision. However, I wouldn’t want you to go the same way because if you are able to understand the difference between the two great funding options that are available to you, trust me, it’ll save you from making some really costly financial mistakes that might ruin you.

I am speaking from experience, and I want you to make smart decisions as regards choosing between loans and grants.

As we said, grants and loans are two ways you can easily secure financial support; however, they’re very different, and their differences are actually significant; you can rightly say that a grant is free money, but there are certain eligibilities you must meet in order for you to be awarded a grant, and no, the grant doesn’t require repayment, it’s yours absolutely. You don’t need to pay back.

On the other hand, a loan is a borrowed money that you must not only repay. You’re to repay with interest, too. Both loans and grants have their different advantages and disadvantages, and they also have different conditions that should warrant you to choose any, so choosing any of them has different effects on your finances.

That’s why we’ll try to break down their key differences in this post; we’ll also look at their advantages and disadvantages; you’ll also get to Know how you can easily access them here in Nigeria. We’ll give you the best clarity possible so that you can decide which of them will be perfect for you.

What Is a Grant?

A grant is a financial support or aid that’s been given to a person, organization or a business to support themselves without the expectations of paying back. Unlike loans that need you to pay back with interest, you are not expected to pay back a grant; you can say it’s free money since you don’t need to pay it back.

More often than not, the government provides grants, Non-governmental organizations(NGOs) and some private individuals, all with the motive of promoting a particular cause. In Nigeria today, most people and businesses you see are a product of grants; most entrepreneurs, students and organizations use grants to push and achieve their goals.

What Is a Loan?

A loan is a financial arrangement where, as a borrower, you receive money from a lender, and both of you will have an agreement of when you will pay back within a specific period; most time, the repayment often comes with interest.

Unlike grants, loans must be repaid. They’re not free money, so you are expected to pay them back within a period. Your repayment always comes with some terms and conditions, like the period you’ll have to repay, the interest rate you’ll have to pay back with, and, in some cases, collateral, too.

 In Nigeria, most businesses and entrepreneurs see loans as a faster way of getting Funding for their businesses and expenses; the harsh Economic realities currently biting the country means lots of people are clinching on loans as a model to sustain their businesses; you won’t blame them though as things aren’t rosy here.

Types of Grants

The Tony Elumelu Foundation grant is for Target 5000 Young Entrepreneurs yearly from Africa.

There are different types of grants out there that you can take advantage of; they come in different ways depending on what you want to use them for; we’ll look at some of the different types of grants in Nigeria and their target audience

1. Business Grants:  If you are a start-up or an existing business owner who’s looking to scale up, then you should look at the direction of a business grant. An example of a business grant is the Tony Elumelu foundation grant, which gives Funding to young entrepreneurs in Africa. Thousands of African youth every year benefit from this grant, and it has helped change the lives of youths.
2. Education Grants: Education grants are another popular type of grant that has helped touch the lives of most Nigerians. Education grants include scholarships and bursaries given to students so as to support their academic pursuits. A good example of educational grants is the different federal government scholarship schemes that are targeted at Nigerian students.
3. Non-profit Grants: These types of grants are mainly available to organizations that are working on humanitarian projects or Community development projects. A good example of Non-profit grants includes grants from international organizations like the United Nations or USAID.

Types of Loans

Commercial banks like UBA provide exclusive loans, Microfinance Banks like LAPO give out millions in loans yearly, and fintech apps like Carbon and Fairmoney.

Most times, Loans in Nigeria are based mainly on their purposes as well as repayment terms; below are some of the popular types of loans you can easily get in Nigeria

Personal Loans

If, as an individual, you have some personal issues that you want to attend to, and you don’t have the means and finances to get them sorted out, then you can seek personal loans. Personal loans can be used for your medical bill, your wedding and other emergencies that might need attending to. You can get personal loans from your commercial banks, microfinance banks and some Fintech platforms like Fairmoney Palmpay.

Business Loans

If you are an entrepreneur or a company owner who’s looking to expand or sustain your existing operations, then these kinds of loans are for you. Bank of Industry (BOI) most times gives these loans to start-ups and existing businesses that are into Technology, Manufacturing, and Agriculture.

Education Loans

Just as the name implies, Educational loans are there to help you finance your tuition or other academic-related expenditures. Although these kinds of loans are not really popular in Nigeria, especially if you compare with other countries that fund student loans, However, the President in Person of Bola Ahmed Tinubu recently kickstarted a student loan scheme that’s targeted at helping Nigerian students to fund their educational expenses, the Federal government is currently using Institutions like the Tertiary Education Trust Fund (TETFund)  to help push student loans to more Nigerian students.

Secured and Unsecured Loans

• Secured Loans: These kinds of loans require you to give up a property as collateral; the essence of these is so as to guarantee that you will pay back because most people who don’t use collateral in loans tend to default payments; a good example is the mortgage loans

• Unsecured Loans: Unsecured loans are the direct opposite of secured loans; here, you don’t really need to bring any collateral; however, you’ll need to pay back your loans with a much higher interest rate, a good example of this loan is some Fintech platforms loans or payday loans, you get loans without collateral, but you pay back with higher interest rates.

Characteristics of Grants

There are so many characteristics that distinguish grants from loans and other sources of Funding; here are some of them.

1. Non-Repayable: Once you are given a grant, it’s all yours, and you don’t have to pay back; so you see, getting Funding through grants is absolutely Cost-effective, so you should take advantage of it if the opportunity presents itself.
2. Competitive: Since those given grants don’t have to pay back, the competition for getting a grant becomes even higher. in most situations, grants are merely of merit, so you absolutely need a very solid proposal or application that is in line with the goals of the provider, that way you’ll have a good chance of getting a grant
3. Purpose-Driven: For the fact that grants are free doesn’t mean you’ll use it anyhow, for every grant given to you, there must be accountability. Remember, grants are given to you because of the goals that you outlined while applying for the grant. So, you must make sure you utilize that grant in line with the goals that you are pursuing; there’s always an accountability measure in place to find out if you are actually working towards your goals.

In Nigeria today, a lot of students and entrepreneurs have achieved their dreams through grants; the fact that you don’t have the burdens of debts means you can easily maximize your productivity as a student or an entrepreneur; however, securing a grant is absolutely a tough task, for you to stand a good chance of securing a grant, you need an absolute perfect proposal that’s unique and different from what others are presenting, that way you can stand a better chance of getting the grant.

Now that we have a good understanding of what a grant is, we’ll look at what a loan is all about; then, it’ll become easier for you to make a decision on which you should go for.

Some Characteristics of Loans

Repayment Obligation

One of the major characteristics of getting loans is that, as the borrower, you must repay your loan within the period that you agreed on, most times it’s always in monthly installments, and if you fail to repay within this timeframe, it can result in some serious penalties that might even lead to legal action in some cases.

Interest Rates

Every loan is repaid with interest, which is actually the profit of the Person lending the loan to you; however, in Nigeria, interest rates are not the same for every loan; they are all unique; many factors like the Person lending the money to you, the type of loans you are getting, how creditworthy the borrower is, all these will have an impact on the interest rate that you’ll be asked to pay.

There’s Flexible Usage

Unlike with grants, where you are expected to use the money for a specific purpose, with loans, there are little to no restrictions on how you should use the funds, so it becomes really easy for you to choose what you want to use it for, the major concern of the lender is that you pay back as at when due without defaulting payments.

Your Eligibility Requirements

Before your loans get approval, many factors will be considered by those who are lending you the money; things like your credit history and your income will be considered if you are borrowing from our traditional banks like UBA, First Bank, and Zenith Bank. They’re likely to demand a salary account, and most times, people without a Salary Account won’t get loans from them, your ability to also provide collateral could affect your chances of getting eligible for the loan.

Some Examples of Loan Providers in Nigeria

1. Commercial Banks: Most Banking institutions in Nigeria, like Access Bank, UBA, GTBank, Zenith Bank, and Polaris Bank, can give you loans for your business or your personal use
2. Microfinance Banks: If you are an individual or an SME owner, Microfinance Banks in Nigeria will give you a loan provided you meet their requirements
3. Fintech Platforms: These might be the most popular and easiest loan providers in Nigeria currently. Some Fintech apps like Opay, Palmpay, Kuda, Palmcredit, and Fairmoney have made getting loans in Nigeria very easy and demure. all you have to do is get their apps, register and start borrowing

When is the right time to Consider a Loan?

You can actually consider a loan if

• If you’re in need of immediate access to some funds, you can ask for a loan
• If you have a very reliable source of income to repay your loan, you can ask for it
• If there are no grants available or the ones available are not suitable for what you want to do, you can ask for a loan.

Although loans are very good, especially if you are in a tight spot that needs urgent financial attention, however before you borrow, make sure you can meet all the required obligations; you can also compare different loan options that are available to you; see the ones that you can easily meet their terms, always go for the best.

Some Key Difference Between Grant and Loan

Criteria	Loan	Grant
Repayment Obligation	You must repay loans, and it must be within a particular period, with interest too	You don’t need to repay anything; it’s considered as free money.
Interest Rates	Borrowing loans comes with interest rates, meaning that when paying back, it will be bigger than the initial amount you took	There’s practically no interest or hidden charges; it’s all yours.
Eligibility	Before you’ll be given a loan, you must show that you are creditworthy or even provide collateral.	For you to be eligible, you must meet some criteria that the grant provider sets.
The Application Process	The application process is not really complicated; you have to show that you have what it takes to repay when due.	Getting a grant requires you to write a very good proposal since it’s free money, and the competition is very high, meaning you must be at your best to qualify.
How Flexible they’re to use	Unlike Grants that you must use for a particular purpose, loans are different; you can use them for just anything.	Any funds you get through grants must be used for the purpose that you specified while applying for the grant.
Major sources of Funding	Those responsible for giving you loans include Banks and organizations	The Government NGOs are the primary sponsors of grants. Some private organizations, too, in some instances
Financial Risk involved	If you fail to pay within the time you’re expected to, it could trigger high financial risks that could lead to severe penalties.	You’re not at any financial risk since you’re not expected to pay back
How fast they get Approved	your loans approved could be really fast, especially if you are borrowing from Fintech platforms.	It’s very slow to get a grant, largely because of the serious evaluation of all the applications and proposals.
The Cost to the person receiving the loan	Repaying your loans means you are paying back with interest, which will automatically increase the total cost of the loan you borrowed	It costs you absolutely nothing, as you are not expected to pay back.

Advantages And Disadvantages of Grants

Grant and loans have their different advantages and disadvantages; your financial situation and capacity can go a long way in deciding which is better; we’ll first of all look at the advantages that come with getting a grant.

Advantages of Grant

1. It’s a Non-repayable Financial Aid 

The most important advantage of getting a grant is the fact that you don’t need to repay the grant given to you. Once the grant is given, you are free from having the pressure of paying back, which means there’s absolutely no pressure if things decide to go south, so if you are a non-profit organization, a student or an entrepreneur who doesn’t have enough funds to pay back, this is absolutely good for you as you’re not expected to pay back.

 2. Support for Specific Projects

As we said throughout the post, Grants are targeted at a particular project such as a business innovation or maybe a social development. With this targeted Funding, you can easily raise the funds to help you to complete a project that otherwise you might find difficult to complete.

For example, as a Nigerian entrepreneur, you can easily apply for grants that will help you launch your business without worrying about whether you’ll repay the money or not.

 3 No Interest or Fees

Unlike Loans, where you are expected to pay interest fees, grants do not carry interest fees, and it’s totally free. You can easily cost-effectively access funds.

if you consider the high interest rates that are often associated with borrowing in Nigeria, you’ll know that a grant is a very good opportunity to avoid paying dubious interest fees

Disadvantages of Grants

We’ve spoken so much about the different advantages that come with getting a grant; it’s not all rosy, though there are also disadvantages that come with grants; we’ll look at some of these disadvantages

1. Highly Competitive

One of the biggest disadvantages of getting grants in Nigeria is the level of competition that accompanies it. Many grant applications out there receive a huge amount of applications, greater than the required number of applicants by far, more than they can actually fund.

What this means is that even with your very strong proposal, you can easily be rejected too, so you see, it makes it very difficult for businesses and people to secure grants in countries like Nigeria, where access to grants is quite limited and competitive too.

2. There’s Strict Eligibility Criteria

Getting grants most times comes with very strict eligibility requirements. for example, certain grants may only be available to just women entrepreneurs or a particular geographical location. Etc. Obviously, this will limit your access to this Funding, especially if you don’t meet some of the criteria.

3. There are Usage Restrictions

Before you get awarded a grant, some particular conditions would be attached to it most times. These restrictions could prove challenging as they dictate how to use the money; for instance, if you get a business grant, you are permitted to use it only for the operational costs of your business. You won’t be allowed to spend it on the marketing or expansion of your business, these, of course, will reduce your steeze and composure.

4. Time-Consuming Application Process

For you to apply for a grant, you must sacrifice time during your application process. For you to write a strong application, you must write a well-detailed proposal, and you’ll equally look for supporting documents and wait for their approval, too. It can be an obstacle to you, especially if your business needs access to very quick cash.

Advantages And Disadvantages of Loan 

Advantages of Loans

Just like grants, Loans have their advantages and disadvantages, too; we’ll take a look at them.

1. It’s Accessible to a larger number of people.

Unlike grants that are not really accessible to a wider audience, loans are different. They’re available to lots of businesses and individuals in Nigeria, and you can easily access them through our commercial Banks, Microfinance Banks or Fintech apps. Unlike grants that have very strict eligibility and requirements, loans have very easy requirements like your creditworthiness or how stable your income is.

   2. More Flexible Usage with Loans

There is more flexibility in how you can use funds given to you via loans; you can use them and expand your business, and you can equally use them for your expenses, so virtually, you can use loans for anything you need them for, so it becomes really accessible to as many people as possible.

3. Build a Credit History

If you take out a loan and pay it back in time, it will help you to build or improve your credit history. Once your Credit History is built, you can easily have access to larger loans or even mortgages in the future.

 If you have a strong credit history in Nigeria, it can open your doors to more financial opportunities. Irrespective of the fact that grants give you better opportunities since you won’t have to repay, with loans, you can have access to greater funds provided you can make repayments.

Disadvantages of Loans

1. There is Repayment Obligation 

Unlike grants, loans must be repaid, there are no two ways about it, and you must repay with interest. Repayment can really be stressful to the borrower, especially if their business is not doing well or their business is not bringing in a steady profit. If you miss payment of your loans, it can attract some penalties like, affecting your credit ratings in the future.

2. High Interest Rates

 Unlike in most climes, Interest rates in Nigeria for loans are on the high side, especially if you are going for unsecured loans or you are getting it from a microfinance Bank; high-interest loans make repayment of loans quite expensive, and if care is not taken, on the longer run you might be unable to pay back as at when due.

3. Risk of Debt Accumulation.

If you are borrowing a loan, be sure that the Risk of accumulating more debts is quite high; if you do not manage your loans properly, you might find yourself in a circle of debts, and that is really not a nice position to find oneself, if your business is not yet stable or you are yet to start getting the stable source of income, it becomes even riskier.

4. Collateral Requirements

There are some loans that you’ll be required to bring in collateral, especially if you are applying for a bigger loan, collateral most times includes your valuable properties or assets.

 If you are unable to repay the loan when it’s due, the lenders could decide to seize your property, and you may inevitably lose out on your property; for those who might not have significant properties, these requirements can be a huge barrier to getting a higher loan.

So you see, while loans are way more accessible, the risks that come with debt, high interest and the requirements for you to provide collateral are quite enormous. Hence, it’s not a suitable option, especially if you don’t have a stable business or source of income; we’re looking at the right time to choose between a loan and a grant.

When is the right time to Choose a Grant vs. Loan?

Before you decide on whether you are going to choose a loan or grant, there are some things that you have to consider first. Things like your repayment capacity and the reasons for seeking Funding will decide on which of these options you should go for. We’ll take a closer look at the best situations that suit these funding options.

When to Choose a Grant

• If You Have Limited Financial Resources:

Grants are always good especially when you know you cannot repay the funds given to you. Since you already know that once given a grant, you don’t repay, grants will no doubt allow you and your business to grow without the added pressure that comes with debt. If you are an entrepreneur or a student Who doesn’t have a steady source of income or can’t repay, I advise you to go for a grant.

• For Specific Projects:

We already know that a grant is often given for a particular project or a purpose; if you have a clear project, Like you want to launch a business or support Community development, provided it aligns with the objective of those who are providing you with grants, I think applying for the grant would be the best for you.

• When You Need Financial Support but Can’t Afford Debt:

If you are not in any position to be in debt, then a grant is the best option for you. Since you don’t have any repayment obligation, there is an actual financial lifeline for you without having to bother yourself with repayment in the future. If you are not sure of your ability to repay the loan, you should first of all consider a grant before anything else.

When to Choose a Loan

• If You Need Immediate Funding: Most often than not, loans as the fastest way to get Funding, especially if you are in an emergency and you need the money as soon as possible, for example, if you need to cover the immediate Cost of running your business operations, or you need to solve a personal emergency, then you should go for loans.
• When You Have the Capacity to Repay: If you have a very stable source of income repa,yment of a loan won’t be a problem for you, then taking a loan will not be such a bad idea. Unlike grants that are given to a particular cause, loans are more flexible, meaning you can use them for some purposes that are not covered by grants. If you need Funding for some purposes that are not covered by grants and you know you have the stability to pay back, then you should go for loans.
• Suppose Grants Are Not Available or Suitable: Like we made you understand earlier in the post. In that case, grants are quite competitive, and not everyone is lucky with it. The eligibility means it’s even restricted from more people. If you find it difficult to meet the qualifications and requirements for grants, or the grant application is taking too much time. If you can no longer wait for it, then you should consider taking up a loan. Loans are always more available and more accessible to lots of people, meaning your chances of getting a loan approval are higher than your chances of getting a grant approval, especially here in Nigeria. Obviously, grants are the best if you need Funding for a particular project that you cannot afford to repay; however,  if you need funds quickly that you can use for anything, then loans are the best thing for you. We believe we’ve explained the situation better for you, it’s now left for you to decide which one is the best for your current financial situation; we’ve given enough guidelines for you to make the right decision. How do you apply for grants in Nigeria? Don’t worry; we’ll walk you through how to apply for grants in Nigeria.

How to Apply for Grants in Nigeria

As you already know, trying to apply for grants in Nigeria is highly competitive. Come on, lots of people are also interested in that free money. However, you can increase your chances of getting grants if you do an excellent job while applying; take the following steps to increase your chances of getting the grant.

• Research Available Grants

The baby step everyone applying for a grant in Nigeria should take is identifying the grant that gives you the best opportunity. In Nigeria, different organizations give grants, The government, Non-governmental organizations, and international bodies. Some of the most popular organizations that give grants in Nigeria include Schemes like TETFund, The Tony Elumelu Foundation, and The Bank of Industry (BOI). Some international organizations, like the United Nations Development Program (UNDP), also give out grants to individuals and organizations.

You must do extensive Research on these grant providers and look out for their eligibility and requirements, those that received the grants before, what did they do differently? if you get the correct information as regards all we’ve mentioned, it will certainly increase your chances of getting the grant

• Know the Eligibility Requirements

If you can identify a particular grant that you feel you have a good chance of winning, take your time and carefully review their eligibility and requirements. Every grant out there has its specific conditions that you must meet. It could be the age requirement or your geographical location.

For example, some grants are only available to those who are into tech or agriculture, so make sure you completely meet these requirements before you start your application process

• Prepare a Solid Proposal

Most of the grants out there need you to prepare a very detailed proposal where you can list everything that you’ll use the grant money to achieve. This proposal, to me, is the most critical part of your application because it shows what you are planning on achieving when given the grant, so you should make sure that your proposal is not just clear but also realistic; you should include things like your measurable income as well as a break down of the Cost of everything, if you happen to be applying for a business grant, you should include a clear businesses plan too.

• Submit the Application

Try and follow your application instructions carefully, and do not be in a hurry to fill up the application. Some grants might require an online application. Some need a hard copy application, so make sure you have all the documents that are needed for the application, things like your Identification, the proof of your project, and financial records. you should include them before you submit, and make sure you double-check everything so as to be sure they’re in order; if you have errors with your application, you might get yourself disqualified

• Follow Up

After you’ve submitted your application, you will have to follow it up so that you can make sure that your application has been received; some grant providers will ask you for additional documentation during the process of reviewing,  so try to always stay in contact with those providing the grant also keep an eye on the grant deadlines for the grant announcements. Now that we know how to apply for grants in Nigeria, we’ll take a look at how you can apply for loans in Nigeria.

How to Apply for Loans in Nigeria

It’s quite easy to apply and get your loans in Nigeria, all you need is a good understanding of all the steps that are involved, don’t worry. We’ll guide you through how you can get your loans in Nigeria as soon as possible

• What Type of Loan You Need?

Before you apply for any loans, ask yourself which type of loan you need. Is it a personal or business Loan? It is so because every loan out there has its own eligibility and requirements, so you should be sure of the loan you are applying for.

• Research Loan Providers

Here in Nigeria, you can get personal and business loans from our commercial banks like UBA First Bank, and Zenith Bank. Some microfinance Banks like Progress Microfinance Bank or LAPO also give loans to small business owners. also, you can decide to get quick and unsecured loans from small Fintech apps like Carbon Fairmoney Palmpay, so you should Research all of them and see the one that is best for you

• Check Eligibility Requirements

Every institution giving you loans in Nigeria has its requirements as well as eligibility before they can approve loans to you. Your employment status, as well as how creditworthy you are, can make or mar your chances of getting a loan. Loans from commercial banks oftens need you to have a salary account, which is not accessible to lots of people. Loans from Fintech apps don’t need many requirements, so try and Research very well for the loan you are applying for.

• Prepare all Necessary Documentation

Every loan provider always wants you to bring certain documents; Commercial and microfinance banks will ask you to bring documents like your bank statement, your proof of income, and a business plan that’s if you are applying for business Loans. Fintech apps will request either BVN or NIN, face verification, and Nepa bill. Make sure you have these documents before applying

• Submit Your Application

Once you have selected whom you want to take a loan from, try to gather all your necessary documents. You can submit your application Once everything is in order. If you are applying with a commercial or microfinance Bank in Nigeria, you might have to do so in Person. However, Fintech apps like Palmpay, Opay, and Carbon. can allow you to submit online

• Wait for Approval and Disbursement

After you’ve completed your submission, the people lending will have to evaluate your application; if they approve it, the funds will be disbursed to you immediately through bank transfer or direct deposit; make sure you thoroughly Understand the terms and conditions of the loan you are applying for, that way you’ll avoid misunderstanding.

Final Thoughts

In this extensive Article, we’ve been able to discuss what loans are and what Grants are. We talked about their various advantages and disadvantages, and we also analyzed the differences between loans and grants.

We highlighted how you can get loans and grants easily in Nigeria. We’ve given enough information and guidelines that will help you to decide on which one you should go for.

Frequently Asked Questions and Answers