Co-financing

What it means

Co-financing is the part of a project's costs that the recipient of a grant or EU funds must pay from its own resources. The aid provider reimburses only a certain percentage of eligible expenditure, and the rest, together with all ineligible costs, is borne by the recipient. Co-financing ensures the company has a genuine stake in the project and shares the risk.

The co-financing rate depends on the type of support, company size and region. State aid rules set a maximum aid intensity, which is higher for small and medium-sized enterprises and for less developed regions. For regional investment aid, the intensity in the Bratislava region is lower than in eastern Slovakia.

Own resources can come from retained earnings, shareholder contributions and often a bank loan. Some programmes restrict whether co-financing may be covered by other public support. The conditions should always be checked in the call and in the aid scheme under which the grant is awarded.

How it works in practice

When planning a project, allow not only for the own share but also for the fact that the grant is often paid retrospectively on the basis of a payment claim. The company must first fund the entire expenditure, including VAT, and receives the grant months later. The cash need at the start is therefore much higher than the co-financing alone.

Providers often require proof of co-financing sources at the application stage or before signing the contract, such as a bank statement, a bank's loan commitment or a shareholders' resolution on a contribution. Without it the project may not be approved. It is wise to obtain a loan commitment early, as the bank takes several weeks to assess it.

In the accounts, the acquisition of assets is recorded in full and the grant separately under the grant accounting rules, released to income gradually in line with depreciation. Co-financing is therefore not a separate accounting item but an economic concept showing how much of the project the company carries itself.

What to watch out for

The most common mistake is underestimating the total cash requirement. The company plans for, say, 30 % co-financing but forgets ineligible costs, VAT, a contingency for price increases and the fact that the provider's money arrives late. The project then stalls or the company bridges the gap with an expensive short-term loan.

Watch out for budget changes during implementation. If the project costs more, the recipient bears the difference, since the grant is usually capped at the amount in the contract. Conversely, savings reduce the grant proportionally. Changes must be reported to the provider in good time and dealt with by a contract amendment.