Grants and financial instruments working together

Published on 12 October 2015

Provisions on combination of financial instruments with grants and other forms of support from the European Structural and Investment Funds (ESIF) are part of the 2014-2020 legal framework.

Using financial instruments together with grants or other forms of support can have several advantages. It can allow financial support to be better tailored to the final recipients’ needs. What’s more, businesses could find combinations of ESIF support more attractive and more accessible. This is because grant elements linked to financial instruments could potentially increase their attractiveness and thus help the instruments to provide long-term growth potential.

Two types of combination approaches are available. They are covered in the latest ESIF Guidance for Member States on Combination of support from a financial instrument with other forms of support (available here). Essentially, the first approach combines financial instruments and certain types of grants directly linked to the financial instrument, in a single financial instrument operation. The second one foresees their combination at the level of final recipient and results formally in two separate operations.

In the first case, certain types of support (interest rate subsidy, guarantee fee subsidy or technical support) are used to improve implementation of financial instrument and its financial products (loans, guarantees, equity or quasi-equity investment). The two types of support (e.g. guarantee fee subsidies and loans) are treated as a single financial instrument, and both fall under the rules applicable to financial instruments.

The other type of combination is available at final recipient’s level. In this case financial instrument support and grants are managed within two separate operations with distinct expenditure. Grants cannot be used to reimburse support received from financial instruments, and financial instruments cannot be used to pre-finance grants. It means that final recipients cannot apply for a loan to pre- finance an investment for which a grant support will be given.

Two useful case studies about combining financial instruments with grants have been produced by fi-compass. These feature examples from Estonia and Hungary. The Estonian example describes a property renovation loan that can be combined with a grant of up to 50% for energy audit.

Hungarian experiences from linking microcredit assistance and grants are described in the other case study. This explains how such an approach has been applied using ERDF to support SMEs. Information is provided in the case study about the objectives of the fund, how the financial instrument was set up, its strategy, achievements and lessons learned.