Why Grants And Loan Differences Cause Friction

There are many different types of grants that are given out, especially during times like these, as the Covid-19 pandemic sweeps the globe. Many nations are busy handing out grants to small businesses and the people who own them, along with a lot of grant money being spent in myriad institutions like colleges, the arts, and so much more. The basic idea of a grant is that the money is a non-repayable fund. What this means, in a nutshell, is that it’s a gift. If someone grants a party money, that money is theirs and there are none of the proverbial strings attached.

This is typically why you will see such a disparity between amount. For instance, you might read something like “Government offers grants of $4,000 to small businesses” in one article, while reading, “Government backs small business loans of up to $100,000” in another. For most people, they might read this and think that something is off with the grant system. Why are grants so low, after all?

This explanation bears a further look, as many people, including regular citizens and even some large news organizations, are lashing out against the Nancy Pelosi-led HEROES Act (a proposed $3 trillion stimulus spending package) for focusing almost entirely on loans and not grants.

People who agree with the proposed spending package claim that the small loans are a good thing, because they’re giving a lot more money to small businesses. Though for a second, forget about who the recipients might be, which include lobbying groups. Instead, it’s important to focus on the difference here, to see how government is making its decisions in this regard.

So, let’s assume that the HEROES Act wanted to give out $50,000 grants, to 10,000 different businesses. That alone is half a billion dollars. Sure, a drop in the bucket in a stimulus bill that’s spending $3 trillion. But it’s also important to understand that the government will not be getting that money back. There is no way that they can recoup a grant. Once it’s given, it’s gone. Though on the flip side of that, if they were instead granting loans, it’s not lost money so much as it’s money put on hold. This, in theory, enables government to give more money to even more businesses, as the money comes attached with terms for businesses to repay the funds over time.

So we see that grants are gifts, whereas loans are repaid. What this leaves us with is a perpetual disparity between the amounts. Even the average person operates like this. If your friend or a family member asks for money, you will likely have little issue in giving them $20 you can spare, with no designs on getting that money back. Though if they asked for $1,000, you would be more reluctant to give that up and expect that it be repaid to you in a timely fashion.

The reason this stuff needs to be thoroughly explained is that we’re dealing with tough financial times for tens of millions of people, and some outrage is starting to bubble its way to the surface regarding how government handles its grants and loans. People want more money given to more people, whereas government wants some sort of guarantee that they can recoup that money once it is given out. Agree or disagree, money isn’t magically created from thin air in unlimited supply.

The Nature of Helping

This brings us to the very nature of helping. Some may argue and contend that you’re not “helping” small businesses by simply giving them loans. They need grants. They cite the student loan mess that’s plaguing America as a reason that loans are more harmful than helpful. After all, there’s nearly a trillion dollars owed in student debt across the nation, with some students never being able to get ahead in life because they’re saddled with extreme debt. So a lot of people see this and can imagine a nation where small businesses had to act like students in order to stay afloat, and the damage that might end up causing in a few years.

So, are loans really helping people, or are they just a sneaky way government is going about sliding everyone into perpetual debt in order to increase the government coffers?

People are torn on this subject. The nature of helping would be to just give money away, though government isn’t a charity. It cannot go into insolvency, despite how many people need help. So we will continue to see loans given in much larger amounts than grants are given.

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