State Aid and how it facilitates the access of businesses to credit

Businesses need to interface with various stakeholders in their business cycle: customers and suppliers, of course, but also financial institutions and public bodies that can support their development and liquidity needs. This is the context in which so-called State Aid fits in, solutions that governments and institutions make available to the entrepreneurial fabric to facilitate its growth and productivity. With Andrea Dominici, Head of Soft Loans & Public Support Programs, we will try to shed light on these issues, answering the most common doubts.

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types of aid
access to credit
subsidized finance

What types of aid do institutions make available to businesses?

The State and, more in general, government bodies, have various means at their disposal to support businesses.

Government aid often involves the direct disbursement of funds, but it can also consist of “indirect aid” in terms of savings and tax benefits, for example, against an investment (typically tax credits, such as those for the purchase of equipment).

Direct grants are classified as follows, on the basis of the purpose for which they are intended:

Grants for equipment: these are non-repayable grants (that do not need to be repaid) for the purchase of equipment;
Operating grants: these grants are also non-repayable, and are for covering ongoing operating expenses (often combined with an investment project);
Interest grants: these are non-repayable grants for lowering expenses on interest on a loan provided at market rates.

In recent years, the Italian State has also been adopting measures to make it easier for businesses to access bank credit.

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How do the facilities for access to bank credit benefit SMEs and why is the State entering the free-credit market?

SMEs are one of the mainstays of the Italian economy: there are about 3.3 million of them (accounting for 89 percent of all businesses in Italy) and they generate a total turnover of 1,800 billion euros (43 percent of the turnover of all Italian businesses) and employ 12 million people. But this type of business, although it has advantages in terms of flexibility and adaptability, has always suffered from a number of limitations compared to large firms, due precisely to its small size.

The main limitations are, in brief:

Difficulty in accessing financial, debt and equity markets, resulting in undercapitalisation;
Financial structure tending more toward the short term, with difficulties in making investments;
Less opportunity for investment in research and development;
Greater difficulty in marketing and distributing products and services in the national and international markets;
Greater difficulty in acquiring specialised managerial skills.

The State, precisely because of the particular nature of the Italian production system centred on SMEs, has adopted measures to remove, or at least mitigate, the limitations (failures of the market and structural barriers) imposed on them, in order to allow better access to bank financing.

What are the means for easier access to credit and what are the main subsidised finance solutions offered by Banca Ifis?

The State operates in the credit market on essentially three fronts:

The provision of a Public Guarantee aimed at improving the creditworthiness of SMEs. The State assists businesses, mitigating the chronic weakness of the financial structure;
The provision of Grants aimed at reducing the cost of credit, making it more sustainable over time. This is as important as ever given the increase in reference rates to curb inflation;
The granting of subsidised funds to banks, which can be used exclusively to finance SMEs. In this way, the State seeks to encourage Banks to focus more on this type of business.

Banca Ifis is actively involved on all three of the above fronts:

It offers SMEs various forms of financing (loans, factoring, leasing) for the purpose of both liquidity and investment. The State can guarantee financing up to a maximum of 80% (SME Guarantee Fund – Law 662/92). But the financing is not just for SMEs: large companies, too, can access State-guaranteed loans (SACE’s Garanzia SupportItalia);
It allows access to Sabatini Law grants for equipment. These grants are combined with the provision of medium-term financing (leasing and loans) for the purchase of new equipment, instrumental to the business activities of SMEs;
Through the provisions of the EIB and Cassa Depositi e Prestiti, Banca Ifis has set up special loans exclusively for SMEs, with an interest rate advantage as well.

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