A grant, a subsidy, or perhaps a subvention?
Knowing that the multitude of financial terms functioning in the language can confuse, we decided to dispel doubts. So let’s start by clarifying a question that Internet users search for extremely often: what exactly is a grant, and what is a subsidy? What are the differences between them? We will also discuss the subsidy, which, although a separate tool, is often confused with a grant.
Grant
According to the formal and legal definition available on the website of the Parliament of the Republic of Poland, grants are funds allocated to finance or subsidize the implementation of public tasks. Funds for subsidies can come from the state budget, local government budgets and international funds such as EU funds.
Important!
The grant is conditional and discretionary – this means that the possibility of receiving funds is based on the fulfillment of certain conditions. If this is done, and the potential beneficiary submits the relevant applications and documentation, the competent authority decides whether to grant the funds or reject the application.
The distinctive feature of the subsidy is that it is a non-refundable and unpaid financial aid. However, there are usually additional conditions attached to receiving grant funds or not having to pay them back – for example, a person receiving funds to start a business commits to running it for at least 12 months. If this condition is not met, the subsidy is refundable in full.
Another hallmark of a grant is its expediency – grant funds must be spent in a specific way.
EXAMPLE
Ms. Paulina intends to launch a business and obtain EU funds for this purpose. To do this, he must register with UP and then apply for a grant to open a business. The application should also include a business plan, a competitive analysis and a detailed cost estimate, which is a de facto list of items that the budding business owner intends to purchase using the grant funds.
If Ms. Paulina – the protagonist of the above example – receives funding, she will be required to purchase exactly those items from the list that she indicated and that were approved (the legitimacy of some of the expenses may be questioned).
There are three basic types of subsidies:
- earmarked subsidies – this type of subsidy is financed from the state budget and is intended to financially support the investments of state entities, for example: executive agencies, local government units, scientific institutes or entities outside the public finance sector;
- Subject subsidies – are aimed at stimulating the production of certain products and services, and are therefore awarded to entrepreneurs producing the products or providing the services covered by the subsidy and to agricultural entities;
- subject subsidies – their purpose is to subsidize only current activities, as specified in a separate law or international agreement.
Funding
It’s actually a term with no legal definition. The Great Dictionary of the Polish Language gives the following interpretation: additional money granted as financial assistance in paying for some project. In a nutshell, this means that a subsidy is some specific type of grant, but it is impossible to compare them or point out the differences.
Grant vs. subsidy
Another questionable issue is how a subsidy differs from a subvention. In this case, too, we are dealing with a free and non-refundable form of assistance, but the subsidy has the nature of a legal claim, which means that the transfer of a subsidy to a given entity results from specific provisions in the budget and cannot be rejected.
Another feature that distinguishes a subsidy from a grant is the lack of exp ediency – the entity receiving the subsidy decides for itself what it will use the funds raised.
We usually talk about subsidies in the context of social organizations, local governments or political parties. However, with the right conditions, an entrepreneur or self-employed person can also receive the subsidy.
Subsidies to local governments
There are several types of subsidies to local governments – they differ primarily in the function for which they are intended:
- A general subsidy is money that is allocated to entities on the basis of specific and open criteria,
- The subject subsidy is provided with an indication of the specific activity it is intended to carry out,
- The equalization subsidy is money allocated to local governments to equalize financial differences between territorial units,
Educational subsidy is granted for educational purposes to local government units – its purpose is to equalize opportunities for students in a given area.
Business start-up grant
Many people have an idea for a business, a vision for growth and potential, but it is not easy for them to decide to start a business because of the cost. Although in theory it costs nothing to start a business in Poland, in reality it requires some financial outlay. What good is a young entrepreneur with a TIN if he won’t be able to purchase goods and won’t have anywhere to store them?
A startup grant may be the solution for aspiring entrepreneurs who are taking their first steps down this difficult road. However, the conditions for receiving it are difficult for many to meet. It all depends on the program under which the entrepreneur wants to raise funds. In 2023 and 2024, you can still apply for grants from the European Funds. It’s also worth inquiring at the relevant city or municipal office – the pool of currently available funds can vary markedly from location to location.
Grants for existing companies
Ne only new entrepreneurs can count on support from the state or the European Union. Also, companies that have already been on the market for some time can apply for funding – especially if they are planning further development and already have a specific vision for it. You can find more information about ongoing competitions and calls for funding at business.gov.pl.
What to do if you fail to get a grant?
Not all grant applications will be successful. Sometimes we may encounter unfavorable circumstances (local governments have limited funds for grants), but due to the discretionary nature of grants, when applying for a grant, it is important to take into account a scenario in which the application will be rejected for various reasons. In this case, it is worth considering other sources of business financing – including factoring.
What is factoring?
Factoring is a method of financing in which an entrepreneur can, among other things, raise funds for company purchases or gain access to cash through the sale of invoices issued to his contractors. Although the mechanism of operation for financing purchases is similar to a loan, the undoubted advantage that distinguishes factoring is its accessibility – companies with a short track record and even those just taking their first steps can also take advantage of it.
