Combining Public Support with Bank Debt Without Losing the Grant
The grant that finances an entire project exists mainly in conversation. In practice, public support covers part of an investment, arrives after much of the spending has happened, and assumes the company can finance the rest. The rest is usually bank debt. That combination is not an exotic structure; it is the normal anatomy of a supported investment. What is also normal is losing the support somewhere inside it: an order of signatures inverted, a cost funded twice, an asset pledged into a breach. None of these failures announces itself at the time. They surface later, as a demand for repayment.
This article sets out how public support and bank debt fit together without destroying each other: why the combination is structural, the order the operations must follow, the incompatibilities that bite, and who must review the whole before anything is signed. The figures that appear are those fixed by regulation, which is what makes them stable from one call to the next. Everything that belongs to a particular call, its amounts, its dates and its windows, lives in its own official publication and is not reproduced here.
Why the combination is structural
Public support is designed to be partial. A grant or a supported loan covers a share of the eligible costs, never the whole project, and the application itself asks how the remainder will be financed. Cofinancing is an eligibility question examined up front, not a detail to resolve later: a company that cannot show where the rest of the money comes from does not have a weaker application, it often has no application at all. Bank debt therefore enters the file before the bank has entered the project.
Public money also arrives late by design. Much of it is paid against justification: the company executes, pays its suppliers, documents the spending, and the support arrives afterwards, sometimes tranche by tranche. Between the invoice and the disbursement sits a gap that someone must finance, and that someone is almost always a bank. A company that cannot pre-finance cannot execute the award it won, which is a quiet and common way of losing support: not through breach, but through a treasury the plan never provided for.
So debt is not the alternative to public support. It is frequently its condition, and parts of the public system exist precisely to make the coexistence work: guarantees that unlock the bank loan, instruments that lend where banks pause. Treating the two conversations as separate projects, run by people who never compare notes, is how a structural partnership turns into mutual damage.
There is a further reason to run them together: each strengthens the other. An award means a public body has examined the project, its budget and its plausibility, and banks read that examination as information. A committed bank facility is the cleanest demonstration of cofinancing capacity to the granting body. The company that shows each side the whole picture borrows credibility from both.
The order of the operations
Public support rests on an incentive principle: it exists to make projects happen that otherwise would not, and the rules police that through dates. Work begun too early can fall outside the support entirely, and in some regimes an early start does not reduce the award, it eliminates eligibility. European law defines what counts as starting, and the definition is narrower than most applicants assume. Work has begun at the earlier of two moments: the start of construction on the investment, or the first firm commitment to order equipment or any other commitment that makes the investment irreversible. Two things expressly do not count as starting, and they are the two that save projects: buying the land, and preparatory work such as obtaining permits and carrying out feasibility studies. So the sequence that preserves eligibility is to secure the site and study the project, apply in writing, and only then place the order that cannot be undone. The written application has a minimum content set by the same regulation: the company’s name and size, the project with its dates and location, the list of costs, and the type and amount of public funding sought. Nothing irreversible is signed before that position has been verified in writing.
The working sequence follows. First the project is defined, with its budget and calendar. Then the eligibility position is verified and the application submitted. The bank conversation runs in parallel from the beginning, because the grant file needs the cofinancing and the bank file benefits from the pending award, but its signatures land in the right slots: term sheets and approvals early, binding commitments and drawdowns where the programme’s rules allow. Parallel conversations, sequenced signatures. That is the whole method.
The gap between award and disbursement has its own instrument. An awarded grant is a recognised claim against a public body, and banks can and do lend against it, bridging the period between execution and collection, sometimes taking an assignment of the collection right as security. Whether the bases permit that assignment is decided by the call and by the granting body, not by the bank and not by the borrower, so a bank lending against a collection right nobody has read may be lending against a receivable that cannot be assigned. Spanish subsidy law caps the exercise from the other end too: aid may never be of an amount that, alone or combined with other aid, exceeds the cost of the subsidised activity. Arranged in advance this bridge is routine. Improvised mid-project it is expensive, if available.
The classic failures are all inversions of the sequence, and all are ordinary business reflexes: the works contracted because the builder had availability, the machine ordered because the discount expired, the facility drawn and partly spent so the promised cofinancing can no longer be demonstrated. Each would be prudent speed in a private project. In a supported one, each can cost the entire award.
The incompatibilities that actually bite
The first is double funding, the bluntest rule in the system: the same cost cannot be paid for twice with public money. When more than one programme touches a project, costs must be allocated between them invoice by invoice, so each euro of spending supports exactly one claim. That is achieved with a cost accounting decided when the applications are written, not with good intentions at justification time, because two files drafted independently will claim overlapping costs without anyone intending it.
The second is cumulation. Total public support is capped by rules that sit above any individual programme, and the de minimis ceiling is the clearest of them: EUR 300,000 to a single undertaking over any rolling three-year period. Every one of those words carries weight. The limit applies whatever the form of the aid, so a subsidised loan or a guarantee consumes it through its gross grant equivalent rather than through its face value. The three-year period rolls; it does not follow calendar years. The aid counts from the moment the legal right to receive it is conferred, not from the moment it is paid. And if a new grant would breach the ceiling, it does not get trimmed to fit: it falls outside the regulation entirely. Above that floor, the maximum intensities for investment aid come from the regional aid map and the block exemption, set by company size and territory, and those are the texts to read for a specific project rather than any summary of them. A company with several applications open across a group can breach a ceiling without any single file being wrong, which is why cumulation is checked centrally or not really checked at all.
The third is declaration. Every application asks what other support has been requested or received for the same project, and the answers are compared, across programmes and across years, at verification time. Inconsistent declarations are one of the most common ways support is lost, and the loss arrives years after the signature, when the discrepancy surfaces in an audit. The defence is unglamorous: a single register of all public support across the company and its group, maintained as carefully as the accounting, so that every declaration everywhere says the same thing.
The fourth is the obligations that travel with the money. Supported investments typically carry duties to maintain the asset, the activity or the employment for a defined period after payment. Selling the asset inside that period, relocating it, ceasing the activity, or restructuring the company in ways that move the investment can each trigger repayment. These duties bind the company as it exists in the future, under managers who may never have seen the grant file, which is why they belong in the corporate calendar and in every due diligence the company undergoes, not in a drawer.
Where bank security collides with grant conditions
The collision point is the asset. The bank wants security over what it finances, usually the same asset the support helped to buy. Granting a mortgage or a pledge over it is often permissible in itself, but it plants a scenario problem: if the borrower defaults and the bank enforces, the asset changes hands inside the maintenance period, the grant condition is breached, and the repayment demand lands on a company that has just lost the asset and is already in default. Each contract behaved as written. The combination produced the worst outcome available.
Covenants create the same interaction with less drama. A facility can oblige the borrower to sell assets, to prepay from disposal proceeds, or can default across to other obligations. A grant clawback, once demanded, is itself a liability that can trip a bank covenant. The two contracts interact even though neither mentions the other, and the interactions run in both directions. Reading the facility against the grant’s obligations, scenario by scenario, is not legal perfectionism. It is the only way to find combinations that no one drafted deliberately.
Corporate life inside the maintenance period deserves the same caution. Refinancings that move assets between group companies, mergers and changes of ownership can each constitute the event the grant conditions prohibit. In a supported company the grant calendar is a third constraint alongside tax and financing logic, and the cheapest moment to consult it is before the reorganisation is designed.
The standard failure behind all of this is documentary, and it has a documentary fix. The facility is drafted as if the grant did not exist, and the grant is accepted as if the facility did not exist. The fix is coordination at drafting time: the bank’s counsel reads the award resolution and the bases, the facility’s security package and covenants are checked against the grant’s duties, and where they genuinely conflict, the conflict is negotiated while it is still a drafting point. Every one of these conflicts is cheap to resolve before signature. Almost none of them is resolvable after.
Who reviews it, and when
The combination needs three readers. The first is the granting body’s own documentation, the bases and the award resolution, which together are the primary law of the support: someone inside the company must have read them whole, obligations included. The second is the bank stack, the facility, its covenants and its security, read against those obligations. The third is a specialist in public support who reads both stacks and answers the only question that matters: does anything on one side put the other at risk. The company’s general advisors are necessary here, but this is a specialism, and it is engaged for the transaction, not discovered during the audit.
The timing of the review is not negotiable: before signature, always. While everything is a draft, sequence problems can be re-sequenced, offending clauses can be amended, the cost allocation can be redesigned, and the assignment of the collection right can be agreed with everyone’s knowledge. After the facility is signed, the options narrow to renegotiation. After the breach, they narrow to consequence management. The review is cheap exactly once, and companies that take it then experience the combination as routine.
What enforces all of this, in the end, is the clawback. Repayment of public support is typically demanded with interest, years after the event, triggered by a verification the company did not schedule, at a moment when the money has long been spent and the investment is sunk. It converts old good news into a present liability at the worst available time. Set against that, the cost of the discipline described here, a register, a calendar, a coordinated drafting round, one specialist review, is close to trivial. That asymmetry is the entire business case, and it does not need embellishment.
Done properly, the combination is not a risk to be tolerated but the strongest financing structure available to an investing company: a blended cost of capital nothing else matches, a project examined from two independent directions, and each layer making the other more achievable. Done casually, it is a contingent liability wearing the costume of good news. The difference lies not in the programmes, and not in the bank. It lies in the order of the signatures, and in whether one person read both files before any of them was signed.
Montclare does not act as a lender. It structures transactions, prepares the file and coordinates financing with authorised institutions.