Last updated on 4 February 2021
Public sector funding includes
- Loans and guarantees
- Capital investment
- EU funding
Growth and internationalization are supported by grants
In Finland, direct grants to companies are mainly provided by Business Finland as well as local ELY Centres (Centre for Economic Development, Transport and the Environment).
Grants are made through several different funding programs designed to meet the needs of the different growth stages of the company. Grants are made to micro, small and medium sized, midcap and large enterprises.
Grants are particularly important for early-stage companies, for whom financing growth with debt is challenging due to inadequate collateral. In equity finance, in turn, the challenge is created by low enterprise value.
Grants typically target the growth and internationalization of businesses supported by a variety of growth, research, analyzing, development, and piloting projects. The grant may, depending on the financial program, be used for purchasing services and/or the salaries of a project team composed of company staff. Along with generic grants, the grant is also available for several specific projects, e.g. Shipbuilding Innovation Aid.
In 2019, Business Finland provided almost EUR 300 million in grants. The majority (57%) of grants were small in size, less than EUR 10,000. However, on a case-by-case basis, the size of a grant could stretch to several million euros. 13% of the grants in 2019 amounted to more than €100,000.
Local ELY Centres provide business development and investment grants. The instruments and conditions granted vary significantly from region to region and it is worth checking the ELY Centre’s website.
Getting a grant also requires the company’s own contribution to the project
Getting a grant is typically subject to the participation of the company in project costs through a self-financing contribution, with the intention of ensuring the undertaking’s commitment to the project. Direct grants can cover 50-75% of the total cost of the project on a case-by-case basis, with the remainder remaining to be paid by the company.
It would be worthwhile to make a survey of all the applicable public funding, since funds raised in the funding round can often meet the self-financing component required.
Funding programs typically also impose other requirements and restrictions on applicability, which may relate, for example, to the size, age or industry of a company. However, there may be flexibility in financing decisions, in which case it is always advisable to communicate with the financier’s own financial advice to assess the suitability of an individual financial instrument. Some of the financing terms may also be negotiable on a case-by-case basis.
Grants can also be used for CAG professional services
We are carrying out a number of analyzing works to support the growth and internationalization of the companies. It is also possible to get public funding to finance these services. Such projects may include, for example, various economic analyses, project surveys, market studies, and growth and internationalization strategies.
Please contact us and we will find out if there is any public support available for the project. We will also support you in the application process.
Public sector loans and guarantees can help in situations where free market funding is not available
As a rule, loans to companies from public entities are provided by Business Finland and the State special financial company Finnvera, which, in addition to loans, also specializes in guarantees and financing of export activities as the official Export Credit Agency (ECA) of Finland.
The loans and guarantees of Finnvera and Business Finland can be used to finance investments, working capital, growth, internationalization, M&A, research, development and piloting.
With bank lending largely based on collateral, the financing decision of the aforementioned entities is based on assessing the company’s chances of success, allowing them to take on higher collateral risk than banks. Funding for Finnvera and Business Finland can therefore be suitable for companies for which access to traditional banking financing is challenging. The public sector is not meant to compete with the banks as a financiers, but to supplement the market for corporate finance on an interim basis.
An example is the Finnvera SME guarantee, which allows growth-seeking SMEs to apply for loans from a commercial bank for working capital, investment and product development needs. The SME guarantee is applied for through the bank for a loan of up to EUR 150,000 and provides a guarantee for 80% of the loan amount. The SME guarantee is completely unsecured and does not require a counter-guarantee from the client. The SME guarantee is suitable for companies that do not have the necessary collateral for a bank loan or wish to save on their collateral mass for future financing needs.
In part of Business Finland’s financial programs, the loan may be partially modified by your grant if, for example, the development project is deemed to be failing and its results are not recoverable in the business.
In 2019, Finnvera granted loans and domestic guarantees of approximately EUR 0.8 billion, with an average per-company financing of around EUR 134,000. Business Finland provided loans of approximately EUR 160 million, with an average per-company loan of about EUR 520,000.
Like grants, loans and guarantees from the public sector rarely cover the financing required to complete the entire project, thus acting as part of a total financing solution. In order to commit a company to a project, a public entity may also require a self-financing contribution.
Loan and guarantee terms, such as the size, price and collateral, vary depending on the financing program, and are often defined on a case-by-case basis as well.
Tesi is a state-owned investment company
Finnish Industry Investment Ltd, or Tesi, is a state-owned venture capital and private equity firm.
Tesi invests in private equity funds and directly in growth companies with the same terms and return expectations as private investors. They share risk, accelerate international growth and believe in active ownership. Tesi aims to develop the Finnish private equity market, as well as promote renewed business activity and economic growth.
The EU provides funding, particularly for high-innovation enterprises
Compared to the EU instruments, domestic instruments typically have the advantage of shorter and simpler application processes combined with a high through-rate. In 2019, around 70% of Business Finland’s funding applications received a favorable funding decision. Finnvera had a turnaround rate even slightly higher than this, around 80%.
Are you interested in public funding?
We are happy to advise in public funding, assessing the suitability of various instruments and creating a total financing solution that can include public entities, the EU, banks, venture capitalists and private investors.
Public support can also be used to buy CAG professional services. Please do not hesitate to contact us, as we will find out if there is any public support available for the project. We will also support you in the application process.