Financial instruments are a repayable form of support from EU funds – instead of a non-repayable contribution, the beneficiary receives a preferential loan, a guarantee for a loan from a commercial bank, or an equity investment. Once repaid, the money returns to the system and is used again, so more projects are supported from the same allocation. Support is not provided directly by the managing authority, but through financial intermediaries – banks, leasing companies or fund managers – selected by the authorised institution. The preferential terms usually take the form of a lower interest rate, a longer maturity, a repayment deferral or lower collateral requirements, which makes financing accessible even to companies that would not qualify for an ordinary loan. Compared with a grant, the process is faster and less administratively demanding, but it is a debt that must be repaid. A grant and a financial instrument can in some cases be combined, but not for the same expenditure.
See also: Subsidy, State aid, Double Financing.
