Grant, concessional and commercial capital

One rand, three prices

The distinction is the price of the money, not its source. A grant is capital that is not repaid. Concessional finance is repaid, but on terms softer than the market would offer for the same risk. Commercial finance is repaid on terms that reflect the market’s own view of that risk. Most funders sit at one point on this spectrum, and many programmes combine two of them.

Grants

A grant is given to achieve something specific — proving a product, hiring in a designated area, buying equipment, preparing a project — and the obligation runs to the outcome rather than to repayment. In practice that often means funds released against milestones or as reimbursement for spend already incurred, eligibility tied to who you are and where you operate, and agreements that allow the funder to reclaim money if conditions are breached. A grant that is not repaid is not a grant without obligations. Grant and government funding in South Africa covers the programmes one by one.

Concessional finance

Concessional finance is repaid, but something about it is more generous than the market would offer. The concession can take several forms: a lower interest rate, a longer tenor, a grace period before repayment starts, subordination to other lenders, or reduced collateral. The money behind it accepts a lower return, or takes more risk, to pursue an objective beyond return — typically a donor, a government or a development institution. Its purpose is usually to make a transaction viable, not to make it free.

Commercial capital

Commercial capital is priced by what a market participant would accept for the same risk, with no mandate to soften it. Its terms are firm precisely because they are comparable: a bank or investor can benchmark them against alternatives. That predictability is its advantage, and the absence of any concession is its cost.

Why the label matters

• What you owe. Treating concessional finance as a grant is the most expensive misreading in this area. A concessional loan is a loan, with a repayment schedule and remedies if it is missed.
• What you may combine. Funders often limit how much other public support a project can carry, and some concessional programmes are designed to sit alongside commercial debt rather than replace it. Stacking is allowed more often than founders assume, but it is disclosed and checked.
• What the funder may ask. The softer the money, the more the funder is entitled to ask about outcomes, ownership and the use of proceeds.

Matching the type to the stage

As a working rule, grants suit the earliest, riskiest steps, where no lender or investor would engage and the task is to prove that something works. Concessional capital suits assets with a long payback, or a genuine impact case that commercial lenders would price out. Commercial capital suits businesses with cash flow that a market participant can underwrite. The transitions between them are where planning matters: a business that has relied on grants needs an answer for what replaces them. Blended finance structures shows what happens when all three are deliberately layered into one transaction.