Grants vs loans vs tax credits vs cost-share: what's the difference?

When people say "I need a grant," they often actually need a loan, a tax credit, or a cost-share program. Each instrument has different rules about repayment, eligibility, and timing.

Grants

Money you don't pay back, usually tied to a specific project.

Pros: Free money, no dilution of ownership, no debt on your balance sheet. Cons: Competitive, slow, high reporting burden, restricted to the approved purpose.

Loans

Money you borrow and repay, usually at below-market interest. Federal examples: SBA 7(a), USDA Rural Development, HUD 108.

Pros: Larger amounts available, faster approval than grants, flexible use. Cons: You pay it back (with interest), requires creditworthiness + collateral.

Forgivable loans sit in between — you get a loan, and if you hit certain milestones (jobs created, square footage built), part or all of it is forgiven.

Tax credits

A reduction in your tax bill, dollar-for-dollar. Must be claimed on a tax return. Examples: Low-Income Housing Tax Credit (LIHTC), New Markets Tax Credit (NMTC), R&D Tax Credit.

Pros: Large amounts, can be syndicated (sold to investors for cash up front). Cons: Complex paperwork, need a tax liability to use, often require a tax professional.

Cost-share programs

The agency pays a percentage of eligible expenses, you pay the rest. Examples: USDA EQIP (conservation), NRCS (soil health).

Pros: Predictable reimbursement for specific activities, simpler than grants. Cons: You front the cash first, then get reimbursed — have to fund cash flow.

Which one fits?

| You want to… | Try… | |---|---| | Run a new program | Grant | | Build or buy a building | Loan or tax credit | | Reduce tax liability while investing in underserved areas | Tax credit | | Add conservation practices to your farm | Cost-share | | Start a business | Loan, possibly forgivable | | Scale a proven nonprofit program | Grant | | Buy equipment that pays for itself | Loan |

Mix and match

The biggest projects combine instruments — e.g. a housing project uses LIHTC equity + a HUD loan + a state grant + a private bank loan. Each instrument fills a specific gap in the "capital stack."