25.01.2021

THE FINANCIAL INSTRUMENT AS A WINNING STRATEGY

In the difficult 2020 year, the structural and investment funds of the European Union are one of the few sources of fresh money for business in Bulgaria. However, the grants they provide are far from the only way to finance with European money.

In recent years, operational and other EU programs have directed more and more of their resources to financial instruments - specialized schemes for facilitated debt or equity and quasi-equity financing with funds from Europe and the national budget, which attract additional funds from private and the public sector. In our country, the money for financial instruments for the current EU programming period with a total amount of BGN 1.2 billion is managed by the state company "Fund Manager of Financial Instruments in Bulgaria", which performs the functions of the so-called Fund of Funds (FF).

Financial instruments aim to use public resources more efficiently than grants. They provide financial support to final recipients with economically viable projects, but with little chance of accessing conventional bank lending or free market investments because they have no business history or are assessed as risky.

Bulgarian business prefers to fight for a grant instead of applying for funding through a financial instrument. In the long run, however, this is not always a winning strategy. Because in many cases the fate of the project does not depend only on money. Fund managers of the Fund of Funds, which offer equity and quasi-equity investments, provide much more than financial resources. They bring much greater added value to the final recipient, providing mentoring support and sharing know-how at every stage of the business idea.

Loans through financial instruments have two advantages at the same time - not only are they more affordable and more profitable than other loans on the market, but in certain areas they bring with them free technical assistance. Most importantly, however, unlike grants, borrowers teach sound financial discipline - strict accountability and cash flow control. Undoubtedly, this is crucial for the sustainability and future success of any enterprise, regardless of its size and field of activity.

Advantages of financial instruments

• Overcoming market imperfections: Funding is provided to target groups with little chance of access to financial resources from the private sector, whose economic activity is important for achieving the objectives of the respective European program, which allocates funds. Financial instruments offer relaxed terms compared to other similar free market financial products.
• Leverage effect: In addition to public funds, financial instruments mobilize private funding, which increases the total amount of support for final recipients.
• Recycling of funds: The funds returned from the funded projects, as well as potential other revenues from them, are used again to support other eligible final recipients and projects.
• Financial discipline: Funds provided through financial instruments are repayable by final recipients. This leads to a more efficient use of public resources compared to grants and reduces the likelihood of enterprises developing dependence on public support.
• Transfer of knowledge and experience: Final recipients can benefit from the expertise of financial intermediaries and other private sector partners in structuring economically viable projects.

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Where to look for information?

The Project Information and Financing Department of the Fund of Funds is a single point of access to information - a partner of the European Investment Advisory Center for Bulgaria. It offers consultations to public and private companies and organizations for:

• loans, equity and quasi-equity investments supported by European Structural and Investment Funds;
• other financial instruments of the European Union (EU);
• programs with public funds at national and EU level, applicable in Bulgaria;
• other European project support opportunities.

Experts from the Fund of Funds answer inquiries about project ideas, proposals and investment intentions at different stages of development or readiness, give advice on funding opportunities, including combined, for the public and private sector.

For projects in the field of urban development and innovation, additional assistance is provided by external experts.

Contact: bap@fmfib.bg

More information at: www.fmfib.bg

SEE ALL PROGRAMS IN TABLE FORM