Innovation is considered a key factor in the development of the modern economy. Therefore, the public sector allocates more financial resources to activities related to innovation, including support for innovative enterprises. For example, European countries have developed a wide range of business finance programs that offer non-repayable funds for various purposes. In addition to domestic resources, there are a large number of other options for financing innovative businesses, such as financial subsidies and grants, as well as additional financial engineering tools.
Financial subsidies and grants are the main forms of government assistance for businesses and large-scale innovation projects.
both large companies and SMEs are playing an increasingly important role in creating an innovative economy.
Non-repayable investment subsidies and repayable instruments
Without investment subsidies, many companies would not dare to undertake bold projects that later turn out to be key to the further development of entire industries. On the contrary, repayable financial instruments, at least in this respect, are less beneficial for business development.
Subsidies have a sharp positive effect on the development of innovative projects and increasing the competitiveness of companies in the local and foreign markets.
Ultimately, grants and subsidies are accelerating the process of restructuring and modernizing businesses around the world, especially in the energy sector, information technology, infrastructure and knowledge-intensive industries.
The grant allows government innovation support bodies to directly control supported projects. Financial engineering, on the other hand, provides businesses with access to a variety of debt refinancing options, and the need to repay borrowed funds helps businesses use them more efficiently. Ultimately, the need to return funds limits their risky use.
From the other hand, support in the form of an increase in equity capital or the repayment of project debts, at least in part in the event of bankruptcy, would stimulate high-risk R&D.
However, it is difficult to expect that the company will use the funds obtained through financial engineering for the implementation of risky research and development projects.
Financial subsidies and grants in innovative projects: the limitations
In addition to the complex application process, which many entrepreneurs find difficult, it requires significant effort in terms of documentation, analysis, and monitoring due to the wide variety of grant competition requirements (local, national and supranational grant programs).
Attention should be paid in the case of financial subsidies and grants for large-scale innovative projects, as it is paramount to gain a time advantage over competitors.
The long duration of attracting subsidies and the duration of the project actually means that non-repayable financing is difficult to use for investment projects with significant innovative potential and very high investment risk. In this case, the venture capital mechanism is the best method of financing such an enterprise.
The use of the venture capital mechanism in the case of many investments is much more expedient and convenient. At the same time, it allows innovative enterprises to receive funds faster.
On the other hand, financial subsidies and grants usually do not provide an adequate degree of confidentiality.
The use of European Union funding programs, for example, requires maintaining a certain life cycle of the project as well as achieving performance targets.
One of the important requirements is the preservation of capital in a particular region for a certain period. Violation of the terms of financing can have serious consequences for an innovative project, up to the withdrawal of a subsidy. On the other hand, this significantly limits the flexibility of the project.
To some extent, this may limit the possibility of restructuring the company during the life of the project. Rational economic analysis can justify the introduction of changes in the object of investment, its termination or replacement with another investment.
In the evaluation of co-financing applications, the success of the investment is less important than the formal and technical elements.
VIOLA FUNDING LIMITED offers a wide range of advanced financial solutions for large businesses, including long-term loans, project finance, etc.
If you are interested in financing large investment projects in Europe, the USA, the Middle East or other regions, please contact our team.
In addition, we provide additional professional services to support investment projects, including financial modeling, financial engineering, loan guarantees and project management.
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