Government grants vs loans vs tax credits: what is the difference?

Government money for businesses and households comes in a few different shapes, and the shape matters as much as the dollar figure. A grant that pays 50% of your costs, a loan you repay over seven years and a tax credit that reduces your tax bill are very different things to plan around. Right now our database lists 125 open or ongoing grant and contribution programs, 31 loan programs and 79 other incentives such as tax credits, rebates and wage subsidies, across the federal government and Ontario.

Grants and contributions

A grant is money you do not have to pay back as long as you meet the program's conditions. Governments often call these payments "contributions" when they come with a written agreement, reporting duties and a share of eligible costs. Most are competitive: an assessor scores your application against the program's goals, and funding is limited. Many reimburse you after you have spent the money rather than paying in advance, so you need cash flow or a bridge loan to start. Some contributions are partly or fully repayable, so never assume "non-repayable" without reading the terms. Two of the best-scoring grant programs open or ongoing today:

• FedDev Ontario - Regional Tariff Response Initiative (RTRI)Open, Up to $20M

  Liquidity assistance and pivot-project funding for southern Ontario businesses hurt by U.S. tariffs. Non-repayable for smaller amounts, repayable for large transformative projects.

  FedDev Ontario

• Apprenticeship Achievement Incentive (employer and group sponsor milestone payments)Ongoing, Up to $17K

  Pays employers and group sponsors at apprentice milestones: registration, each in-class level, and certification.

  Ministry of Labour, Immigration, Training and Skills Development

Loans and loan guarantees

A loan is borrowed money you repay, usually with interest. Government-backed loans can be attractive because terms are often longer or more flexible than a bank's: interest-only periods, lower or no fees for early repayment, or a government guarantee that makes a lender more willing to say yes. A loan guarantee does not give you cash itself; it backs part of a loan from a participating lender. Because loans are repaid, our ranking discounts them against grants of the same size. Two of the best-scoring loan programs at the moment:

• BDC Small Business LoanOngoing, Loans up to $350K

  Online-assessed term loan of up to $350,000 for upcoming projects or expenses, with interest-only periods.

  Business Development Bank of Canada (BDC)

• Canada Small Business Financing Program (CSBFP)Ongoing, Loans up to $1.1M

  Government-backed loans through financial institutions to help small businesses finance equipment, leasehold improvements, intangibles and working capital. The lender approves the loan and the government shares the risk.

  Innovation, Science and Economic Development Canada, delivered by banks and credit unions

Tax credits and deductions

A tax credit reduces the tax you owe, dollar for dollar, after you spend on something the government wants to encourage. A deduction reduces the income that is taxed, which is worth less than a credit of the same size. The key distinction is refundable versus non-refundable. A refundable credit can be paid out in cash even if you owe no tax; a non-refundable credit can only reduce tax you actually owe, although unused amounts can often be carried to other years. You claim credits through your tax return, so they reward spending you have already done and records you have kept. Research and development is the clearest example, and the three programs below show how the same spending can earn a federal credit and two Ontario credits with different rules:

• Scientific Research and Experimental Development (SR&ED) Tax IncentiveOngoing, Limit $6M

  Published terms: Basic ITC 15%; enhanced ITC 35% for most CCPCs on up to $6 million of qualified expenditures for tax years beginning after December 15, 2024 ($3 million before). ITC at 35% on current expenditures is 100% refundable; on capital expenditures 40% refundable...

  Canada Revenue Agency

• Ontario Innovation Tax Credit (OITC)Ongoing, Limit $240K

  Published terms: 8% refundable credit on qualified expenditures, based on a $3 million expenditure limit; maximum credit $240,000 (years commencing after May 31, 2016)

  Ontario Ministry of Finance / Canada Revenue Agency

• Ontario Research and Development Tax Credit (ORDTC)Ongoing

  Published terms: 3.5% non-refundable credit for taxation years commencing after May 31, 2016

  Ontario Ministry of Finance / Canada Revenue Agency

There are 28 open or ongoing tax credits in our database; see our tax credit hub for the full ranked list.

Rebates, wage subsidies and other incentives

Rebates return part of a purchase price after you buy, for example for energy-efficient equipment. Wage subsidies cover part of the cost of hiring or training an employee. These are usually simpler to use than a competitive grant, but they are tied to a specific purchase or hire. Browse rebates and wage subsidies.

How to choose where to start

• If you need cash for a project that has not started, look at grants and loans first, and check whether costs incurred before approval are eligible. Many programs exclude them.
• If you are already spending on research, training or equipment, check tax credits and rebates. They reward spending you are making anyway.
• If you cannot fund your share of costs, a loan or a program with a higher cost-share is more realistic than a small grant.
• If you are applying to several programs, check the stacking rules. Many programs cap total government funding for the same costs.

Common mistakes

The biggest is reading a published maximum as the amount you will receive. Maximums are caps; actual awards depend on your costs, your project and the program's budget. The second is starting spending before you are approved. The third is ignoring repayment terms on contributions and loans. To see programs by funding type, browse grants, loans and other incentives, or read how to check if you are eligible.