As with any source of funding there are pros and cons relative to other sources of funding. Some of the pros and cons of government business grants are as follows:
The Pros
No repayment: Different from other sources of financing, grants require no repayment of the award amount. If your business is given a government grant, then it is assumed that your project is improving society. Taxes from a successful business and jobs for the community are payment enough in the government's eyes.
Oversight: If a grantor gives you funds, chances are that they will occasionally "remotely" or in person supervise the business from time to time, just to see if things are going the right way. Although this is also included in the cons section, oversight may not be a bad thing. If you are on the wrong track, it helps if someone is watching over you to alert you to mistakes. Whether this is a pro or con depends entirely on management's attitudes and feelings. Some may like the grantor to look over their backs while others may resent it.
The Cons
Time: Grants take time to be processed and evaluated. Businesses might have to wait a few months at the least before they receive funding. Sometimes funding may take up to a year. If you need funding fast, perhaps some short term loans or other financing options will be better suited for your business.
Difficulty to Obtain: Most lines of debt and equity financing will only assess the viability and projected income of the business. However, since grants require no repayment, they have additional requirements. Your business must help the community or society in general, and meet stringent requirements of the grantor. If grants are not a fit for your business, look for other sources of financing.
Oversight: Although it depends on the terms, debt financing has less oversight than equity and grant financing. Equity financing leads to shareholders that hold management accountable. Grantors have stringent requirements that have to be adhered to throughout the course of the grant term. Debt financing may be certain requirements such as asset to liability ratios but debt financiers are generally content as long as the business is repaying them the agreed upon amount at the agreed upon time.
Documentation: Businesses that are financed by grants will usually have to provide documentation in addition to the regular documentation done by the business. This is due to the fact that businesses that receive grants have more requirements and therefore must provide proof that they are continuing to meet those requirements. In reality however, "excessive" documentation may be a good thing as it forces you to see things about your business you may have otherwise missed.
Although it seems that the cons outnumber the pros, the fact that government grants don't require repayment far outweighs the cons; that is, if you are willing to accept some of the requirements that the government wants you to meet.