How to Request a Definition of Government Source Inspection
Grant, subsidy, grant, subsidy: what is what?
Funding advice is not a book with seven seals, but it often requires dedication and extraordinary measures to survive successfully in the funding jungle. With this article I would like to explain the basic terms in order to make the right decisions for projects with funding, subsidies, grants or subsidies.
The EU treaty has a definition that should be viewed as the core, and is defined by the term "aid": Aid is an economic benefit that a member state gives to a company or a certain group of companies without or due to non-market / adequate consideration grants from state funds. The form of the advantage is completely indifferent. It can therefore be grants, interest subsidies, loans, guarantees, company investments, letting of land, delivery of goods, tax or tax-like exemptions, capital injections, assumption of losses, etc., provided that these are granted below market conditions.
At this point it can be deduced that all state measures in favor of a company or group of companies, which even harbor the suspicion of a pecuniary benefit, fall into the area of aid.
But what are subsidies?
The term "funding" is not a clear term in the legal or business sense. The currently used definition of federal policy uses the following definition: Funding means are financial contributions in the form of grants, warranties, sureties, guarantees or participations in recipients outside the federal administration, which are earmarked in the form of project funding to achieve political goals within the framework of the recipient's own tasks be sufficient. (Source: IfS, Institute for Urban Research and Structural Policy GmbH - Development of performance indicators as a basis for the evaluation of funding programs, BMWI report 2010)
Thus are subsidies: Grants, guarantees, sureties, guarantees and participations! The reader will notice that some of the terms that are commonly referred to as funding are missing. What is missing are the cashless subsidies and privileges in various areas of taxes (e.g. sales and electricity tax), but also the entire credit area! Thus, the subsidized loans do not belong to the subsidy funds - but to the subsidies!
What is the credit area or what are the promotional loans - which are actually not counted among the promotional funds !? A promotional loan is a cheap bank loan. This loan is generally secured in the same way as any other bank loan. One of the advantages of a promotional loan is the favorable condition that arises from the creditworthiness of the promotional banks and can be "passed on" to the company via the "house bank". In some regions or when creating or maintaining (new) jobs, there may also be interest subsidies for the company's promotional loan, which then further reduce the promotional loan interest that has already been subsidized. Due to the current low interest rates, there will probably be short-term repayment subsidies for the promotional loans - which would actually be a subsidy. More on this elsewhere. Promotional loans often have grace-free years and can also be agreed with a final maturity. There are terms of up to 30 years and the promotional loans can be combined with other promotions (e.g. grants).
Back to the funding: The grant can be defined as follows: A grant is a non-repayable grant without direct consideration. It can therefore be cash, goods or services. According to Duden, the grant is an amount that someone receives to help them finance something. Here there is the start-up grant, the wage subsidy, the project subsidy and the regional subsidy. So grants are subsidies and are also part of the funding!
We call the allowance similar to a grant. This is a separate law with a legal claim for the applicant. The allowance therefore has a special position, as a legal claim is rather unusual. In addition to the allowance, there are also tax breaks, which offer exceptions to the scope of a tax or tax liability (e.g. electricity tax). In terms of the definition of a subsidy, it must be a question of not collecting a tax. This waiver can be partial or total. Postponing taxation (advance depreciation) is not a tax break in this sense.
... and what are subsidies?
If you look at the origin of the word and use Latin for the derivation, you get the word subvenire. It means "to come to the rescue". Let us take a look at paragraph 7 of the definition of "subsidy fraud" in Section 264 of the Criminal Code (StGB): (1) Subsidies in the sense of this provision is a service from public funds under federal or state law to companies or companies that are at least partially without market consideration is granted and is intended to promote the economy. (2) ... a service from public funds under the law of the European Communities, which is at least partially granted without market consideration.
Subsidies are therefore included in aid!
The definition does not provide for any further derivation and we make do with word structures from the federal government's subsidy report. There are the following Types of subsidies:
advancement: Development of new economic fields
Adaptation: Change of economic and / or company forms
conservation: Structures worth protecting (cultural or social)
So there is a legal definition of subsidies but not of subsidies. Unfortunately, business administration does not use this term in connection with corporate finance either.
We therefore use the following definition of the following terms to make subsidies and subsidies easier to understand:
Type of funding: describes the different forms of financing of the subsidies (including subsidy loans!)
Funding area: describes the perspective of politics in relation to the reason for the funding
Funding occasion: represents the reason for the (planned) use of capital in the company or in the project
Now we can Funding types and then we come to the following:
The Funding types are grants, tax breaks, low-interest loans (promotional loans), investments, guarantees and combinations thereof.
Funding can basically be divided into two main areas. First, those given “without collateral” and, secondly, those given “with collateral”. For the former, there are the "refundable" and the "non-refundable". In the case of the “repayable”, on the other hand, there is equity substitution, public participation, subordinated loans and start-up financing. With the “non-repayable” there is the grant, the allowance, the tax advantage and the benefit in kind.
In the second main area, there are also “with securities” in addition to “without collateral”. In the case of “with collateral”, we differentiate between “with proportional liability relief” and “with full bank liability”. For those with “proportional discharge of liability” there are those with “exemption from liability” and those with “deficiency guarantee”. For those with “full bank liability” there is no further subdivision: it is full bank liability.
Let us now turn to the funding areas. This describes the perspective of politics for which areas there are subsidies (not just subsidies!): Individual subsidies, project subsidies, regional subsidies, material subsidies and SME subsidies
The third and last grouping concerns the reason for the funding, and thus the reason for using the funding: This includes, among other things, business start-ups, company succession and company acquisitions, participation, buildings, machines, working capital, funding for research and development, foreign trade funding, the environment, energy, Liquidity support, consolidation, etc.
Conclusion: Those who only associate funding with promotional loans exclude many financial opportunities for companies. Anyone who says subsidies uses a comprehensive term across everything and leaves nothing out, because subsidies also include promotional loans. Subsidies, in turn, are aid. For me and for us as a subsidy consultant, all areas - including subsidy loans, are part of subsidies. We should actually be "grant consultants" - but the term is not as catchy as grant consultants. In the case of customer orders, we use all the possibilities of aid advice that are useful to the customer. That is comprehensive advice on subsidies from feder consulting!
Kai Schimmelfeder, the “funding pope” is a multiple book author and successful entrepreneur with passion and an expert on the subject of public funding, grants and subsidies and their specific use for entrepreneurial success. As a multi-award-winning funding expert, he and his team have carried out over 11,000 consultations since 1996 and supports small, medium-sized, large companies and start-ups in investment projects with public funding. In his funding advice, seminars and lectures, "Mister Funding" Kai Schimmelfeder inspires his audience with his concentrated practical knowledge and motivates them to think new ways. Kai Schimmelfeder is, among other things, managing director of the medium-sized consulting company feder consulting, and owner of the subsidy expert office.
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- Egon Stb Hülsemann on April 9, 2020 at 12:12 pm
- Tristan Wilms on July 9th, 2020 at 6:16 pm
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