Unlike bonds, loans, and notes, grants do not have to be repaid. In a sense, grant funding is “given” to the recipient. Grants are often made by higher levels of government to lower levels of government.
For example, the federal government has many grants for state and local governments.
Although grant money does not have to be paid back, the entity making the grant (the grantor) typically requires that the entity receiving the grant (the grantee) use the funding for a specific purpose, such as a particular education program. Grants may contain clawback provisions where the grantor can take back the grant money if the grantee does not comply with all provisions of the grant.
Many grants are funded on a reimbursement basis. For example, the eventual grant recipient first spends its own money for the specified purpose, such as buying equipment. The grant recipient then sends supporting documentation, such as a receipt or an invoice, to the grantor. If the spending is approved, the grantor reimburses the grant recipient for the cost of the equipment.