Grant, loan, repayable contribution, rebate or tax credit: how Canadian funding types differ

Canadian funding comes in a few main shapes. A grant is money you don’t pay back, a loan or a repayable contribution is money you do pay back, a rebate returns part of what you spent on something that qualifies, and a tax credit lowers the tax you owe after the fact. Knowing which one a program offers tells you what you will owe, when the money arrives and whether you must apply before you spend.

What is a grant?

A grant is money given for a set purpose that you don’t repay, as long as you follow the terms you agreed to.

• You don’t pay it back, but you must spend it on the eligible costs the funder approved.
• You usually pay part of the project yourself. This is called cost-sharing, and each program sets its own share.
• The money often arrives as a reimbursement after you send a claim, not as a cheque up front.
• You report on what you did with it.

Non-profits see far more true grants than businesses do. Many programs that people call “business grants” are really cost-shared or repayable. Our post on small business grant myths explains why.

How is a repayable contribution different from a loan?

Both are paid back, but they work differently.

A repayable contribution is funding for a specific project that you repay over time, often without interest, with repayments that start after the project ends. Many regional development agencies fund businesses this way. Business Scale-up and Productivity in British Columbia is one example: repayable funding to help a business grow.

A loan is money you borrow and repay with interest. Public lenders and some programs lend to businesses a bank might turn down, such as start-ups. The BDC online small business loan comes from a Crown corporation, and Futurpreneur pairs start-up loans with mentoring for young entrepreneurs.

The main differences:

• Purpose: a repayable contribution pays for an approved project; a loan can often be used more broadly.
• Cost: a repayable contribution often has no interest; a loan has interest.
• Timing: a repayable contribution is usually paid as you claim costs; a loan is usually paid out at once.
• Terms: each program sets its own repayment terms, so check the program page.

What is a rebate?

A rebate is money back after you buy or install something that qualifies, most often an energy-saving upgrade for a home or business.

The catch is timing. Many rebates need pre-approval, an energy assessment or an approved contractor before you start. If you install first and ask later, you may not qualify. Read why you should apply before you spend and the home energy rebates guide, or browse energy funding.

How does a tax credit work?

A tax credit lowers the tax you owe. You don’t apply in advance and wait for a decision. Instead, you keep good records of the costs that qualify and claim the credit on your tax return.

A refundable tax credit can be paid to you even when it is more than the tax you owe. A non-refundable one can only bring your tax down to zero.

The best-known business example is the SR&ED tax incentive, which rewards research and experimental development. Our post on SR&ED and IRAP compares it with a program you apply to first.

Where do wage subsidies fit?

A wage subsidy is a kind of grant tied to hiring: the program pays part of a new employee’s wages for a set time. Canada Summer Jobs is a well-known example. See the wage subsidies and hiring programs guide.

Which type is right for you?

It depends on what you need the money for and when.

• A one-time project with a clear result (a new product, an export trip, a community program): look for grants and repayable contributions.
• Starting a business or buying equipment: loans and start-up programs are often the most realistic. See funding to start a business.
• Upgrading equipment or a building to save energy: look for rebates, and get approval first.
• Research and development you are already doing: a tax credit may apply, and some programs also fund projects in advance.
• Hiring: wage subsidies.

The quickest way to see what fits is to answer a few questions on the eligibility check. Each result shows its funding type, so you know what you are getting into.

Can you combine different types?

Often, yes. A business might use a repayable contribution for equipment, a wage subsidy for a new hire and a tax credit for its research. But programs often limit how much public money one project can receive in total, and they ask you to list your other funding. This is called stacking; read can you combine grants? before you plan on more than one.

Frequently asked questions

Do I have to pay back a grant?

No, as long as you spend it on the approved costs and follow the agreement. If you break the terms, for example by spending on something else or not finishing the project, a funder can ask for money back.

Is a repayable contribution the same as a loan?

Not quite. Both are repaid, but a repayable contribution pays for a specific approved project and often has no interest, while a loan usually has interest. Each program sets its own terms, so check the program page.

Do I need to apply before claiming a tax credit?

Usually not. You claim a tax credit on your tax return for costs you already had. What matters is keeping clear records as you go.

Are there free grants to start a business?

Fewer than most people think. Start-up funding is more often a loan, a repayable contribution or training with a small grant. Our guide on small business funding in Canada walks through the options.