USEFUL GUIDESFACILITATED FINANCE
In this guide, I try to define the concept of facilitated finance, or in other words all those financial instruments arranged by the national, regional or European legislator, which are used to encourage the development of new projects and the realization of new investments by companies.
The goal of these instruments is the development of companies and their competitiveness, favouring their investments. Possible financial tools are subsidized loans, tax breaks, grants, credit guarantees, and investment in risk capital. They can be activated according to each case through direct funds and/or indirect funds, which we have already seen here.
How to plan the correct investment?
Facilitated finance tools must be considered to plan a company’s investment, as they can be a valuable resource to consider. Therefore, it is possible that public authorities provide financial resources to the company with more favourable conditions than the market does, in order to help or develop certain strategic sectors.
Furthermore, facilitated finance instruments help to counterbalance any differences caused by the geographical or dimensional position, trying to favour all companies, even those that are smaller or that have fewer resources available.
If a company plans to make certain investments, these kinds of tools should be considered in order to understand the opportunities available. However, the analysis of the investment plan remains a preliminary and prioritized activity, as this choice must be made prior to the use of any facilitated finance instruments. The choice to make certain investments by a company is dictated by specific and strategic needs, which are linked to various factors such as the reference market, the positioning of the product or service, the analysis of the competition, and external geo-political factors.
Furthermore, if the company chooses to use facilitated financial instruments, it must also be able to support a co-financing share relating to the planned investments (e.g. by anticipating part of the expenses provided for in the plan).
What are the types of financial tools?
As mentioned previously, the types of benefits are different:
- Non-repayable contributions, with no obligation to return the received financial aids.
- Subsidized loans, which have a series of advantages compared to credit solutions available on the market (e.g. lower interest rates).
- Credit guarantee, which is a public guarantee that replaces the expensive guarantees normally required to obtain a loan.
- Tax breaks, i.e. tax concessions granted to companies to carry out some specific activities (e.g. hiring certain categories of workers).
- Venture capital, which is a tool that aims at stimulating a partnership between public and private in Venture Capital investments in start-ups and innovative SMEs.
What are the types of beneficiaries?
The major targets of regional, national and EU public grants are Micro, Small and Medium Enterprises (SMEs). There are also numerous financial instruments for innovative start-ups, as well as for young and female entrepreneurs through some specific funds.
As we have already seen here, it will be necessary to check the prerequisites to be a beneficiary for a specific call, as well as to verify that the applicant company can follow these prerequisites (e.g. company size, geographical position). The sectors that can take part (as well as those that are excluded) will also be specified in the call.
Furthermore, it will also be necessary to understand the evaluation measures, the available resources, the specific deadlines, the need for certain requirements, as well as the feasibility of the company project.
What are the eligible expenses?
Once we have verified the alignment of the financial instruments with the company investment plan, as well as the eligibility of the proposing legal entity, we will have to actually understand which “eligible expenses” are indicated in the call (i.e. which planned investments can actually be facilitated through a public tender or grant).
Eligible expenses vary from case to case. In principle, we can say that the expenses aimed at the realization of the project or investment during the project duration are allowed.
For example, these can include personnel expenses, the purchase of machinery (relating to the depreciation rates for the duration of the project), and consultancy costs.
When considering the eligibility of expenses, VAT must always be excluded and the percentage of coverage by the financial instrument (or the required co-financing share) must also be checked.
What is the de minimis rule?
When reading a call, it is easy to come across the words “de minimis”, so let’s take a look into what this is. In general, de minimis is a rule that disciplines small state aid amounts (i.e. so-called de minimis aid) that are exempted from state aid control, as they are deemed to have no impact on competition and trade in the EU internal market. De minimis aid thus refers to small amounts of state aid given to undertakings (which are essentially companies) that EU countries do not have to notify the European Commission about. The maximum amount is € 200 thousand for each undertaking over a 3-year period.
How to access facilitated financial tools?
The primary advice is to constantly monitor the publication of calls for tenders through the sites of regional, national and European public bodies, or through the sites of the project databases (which we have already seen here.
Having identified the call for tender that could be useful for the investment of your company, it will be necessary to verify that all the requirements are fulfilled. Of course, the help of a consultant is very advantageous at this stage, as their experience means that it is possible to immediately understand the feasibility of the tender, with respect to the project or investment to be implemented.