How Grants Differ from Other Federal Funding and Financing
Cooperative Agreements vs. Grants
Both grants and cooperative agreements provide financial assistance to applicants.
Grant proposals often require explicit details about goals, projects, staffing, capacity, and completion timeframes; this allows a granting agency to approve and fund awards with minimal oversight.
Under a cooperative agreement, on the other hand, a federal granting agency or a pass-through entity is substantially involved in the participation, performance, or implementation of the funded project. Working side-by-side—in contrast to working in separate roles as “funder” and “awardee”—makes this kind of funding mechanism “cooperative.”
The specific ways this involvement is integrated varies by agency. These differences are explained in 31 U.S.C. 6301-6308.
Loans vs. Grants
In contrast with grants, loans need to be paid back to the government (reimbursement or repayment).
Loans provide funds in the form of up-front funds—which are helpful for urgent projects that need a lot of money quickly—through credit assistance programs that must be paid back on a future date(s) agreed upon by all involved parties, usually with a percentage of interest charged on the original loan amount.
Loans leverage federal funds to attract private and other non-federal co-investment for transportation projects. This can take the form of secured (direct) loans, loan guarantees, and lines of credit.
Advantages of Loan Financing
- Depending on the agreement, some loans offer more investment opportunities and allow more flexibility to obtain investment at any time.
- Loans do not have an investment ceiling, in some cases allowing borrowers to obtain as much credit as repayment abilities allow.
- Loans may provide increased opportunities to undertake larger and longer-term capital investment over time than would otherwise be possible for certain projects.
Contracts vs. Grants
While grants provide applicants with financial support to achieve certain program or policy objectives of their own concept (reviewed using a proposal system), contracts are used to procure property or provide services directly to or for the government itself (such as performing a public service on behalf of a government agency) and are usually awarded through a bidding system.
For example, many highway and bridge construction projects are funded with money from USDOT and are typically implemented by grant recipients. The contractors performing the work including the cement masons, carpenters, and heavy equipment operators seen working, who are not employed directly by USDOT: they are employees of a private business contracted through a city, county, Tribe, transit agency, state, or the Federal Government.
Public-private partnerships (“P3s” or “PPP”) are a popular type of contractual agreement between a public governmental agency and a private entity that allow for greater private participation in the delivery of projects.
In transportation projects, this participation typically involves the private sector taking on additional project risks such as design, construction, finance, long-term operation, and traffic revenue.
Learn more about P3s at FHWA’s Center for Innovative Finance Support.